Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
Personal Property Securities Bill 2009
REPLACEMENT EXPLANATORY MEMORANDUM
(Circulated by the authority of the Attorney-General,
the Honourable Robert McClelland MP)
THIS MEMORANDUM REPLACES THE EXPLANATORY MEMORANDUM PRESENTED TO THE HOUSE
OF REPRESENTATIVES ON 24 JUNE 2009
table of contents
table of contents 2
GLOSSARY 6
OUTLINE 11
FINANCIAL IMPACT STATEMENT 13
CHAPTER 1 - INTRODUCTION 14
PRELIMINARY 14
GENERAL APPLICATION OF THIS ACT 15
CHAPTER 2 - GENERAL RULES RELATING TO SECURITY INTERESTS 17
SECURITY AGREEMENTS 17
SECURITY INTERESTS 18
Enforceability against debtors 19
Enforceability against third parties 19
Perfection 20
Possession and control of personal property 21
POSSESSION 21
Control 22
Attachment and perfection: specific rules 24
PROCEEDS AND TRANSFER 24
Attachment of security interest to proceeds 24
Perfection of security interest in proceeds 25
Transfers of property 26
Collateral returned to grantor or debtor 27
Collateral returned from bailee 27
Negotiable instruments and investment instruments 27
Following sale or lease 27
Accounts and chattel paper 27
Relocation of collateral or grantor to Australia etc 28
Main rule 28
Intangible and financial property 28
Taking personal property free of security interests 28
UNPERFECTED SECURITY INTERESTS 29
Serially numbered personal property 29
Special rules relating to motor vehicle purchases 31
Incorrect or missing serial number 31
Transactions in the ordinary course of business 33
Low value consumer property 34
Security interests in currency 35
Security interests in investment instrument or entitlement in the
ordinary course of trading 35
Security interests in investment instruments 35
Security interests in investment entitlements 35
Temporarily perfected security interests 35
Rights of secured party and transferee 36
Priority between Security Interests 36
PRIORITY OF SECURITY INTERESTS GENERALLY 36
Default priority rules 38
Priority of security interests perfected by control 39
Advances 41
Purchase money security interests 41
NON-PURCHASE MONEY SECURITY INTERESTS IN ACCOUNTS 44
Priority of security interests in transferred collateral 45
Priority of creditors and purchasers of negotiable instruments, chattel
paper and negotiable documents of title 47
Priority of other interests 48
Priority between security interests and declared statutory interests 48
Priority of execution creditors 49
Returned goods 49
Priority where no foreign register 50
Transfer and assignment of interests in collateral 50
TRANSFER OF COLLATERAL 50
Rights on transfer of account or chattel paper 50
Modification or substitution of contract 50
Rights on transfer of account or chattel paper 51
Chapter 3 - Specific Rules For Certain Security Interests 53
AGRICULTURAL INTERESTS 53
RELATIONSHIP BETWEEN SECURITY INTEREST IN CROPS AND INTEREST IN LAND 53
Accessions 54
PRIORITY RULES 54
Enforcement of security interests in accessions 56
Processed or commingled goods 56
INTELLECTUAL PROPERTY 58
IMPLIED REFERENCES TO INTELLECTUAL PROPERTY 58
Security interests in intellectual property licences 58
Chapter 4 - Enforcement of Security Interests 59
GENERAL RULES 59
EXCLUSIONS 59
Exercise of rights 59
Collateral used for consumer purposes 60
Contracting out 60
Relationship with other laws 61
Consumer Credit Code 62
Enforcement rights where there are multiple secured parties 67
Notice 67
Enforcement of liquid assets 68
Seizure and disposal or retention of collateral 68
SEIZING COLLATERAL 68
Seizure by parties with a higher priority 69
Disposing of collateral (including by purchasing collateral) 70
Disposal by sale 70
Disposal by lease 71
Purchase of collateral by the secured party 71
Duties owed by a secured party when disposing of collateral 72
Statements of account 73
Retaining collateral 73
Objection to purchase or retention 74
Rules applying after enforcement 74
REDEMPTION 75
Reinstatement of the security agreement 75
Chapter 5 - Personal Property Securities Register 76
ESTABLISHMENT OF THE REGISTER 77
REGISTRATION 78
Registration with respect to security interests 79
GRANTORS, SECURED PARTIES AND GIVING OF NOTICES 80
Collateral descriptions 81
Serial numbered goods - motor vehicles and other goods 81
Allocation of a single class and other descriptors prescribed by
regulation 82
Proceeds 82
End times, default end times and renewal of registrations 83
Subordination, purchase money security interests and matters prescribed
by the regulations 83
Verification statements and registration events 84
Effective registration 86
Defects in registrations 86
Registration continues despite certain defects 88
Requirement to end the registration of certain property 88
Failure to pay maintenance fee 89
Searching the register 89
SEARCH CRITERIA 90
Authorised search purposes 91
Interference with privacy 92
Written search results and evidence 93
Copies of financing statements 93
Amendment demands 94
ADMINISTRATIVE PROCESS TO DEMAND AMENDMENT OF A REGISTRATION 95
Judicial process to obtain amendment of a registration 96
Removal of data and correction of registration errors 97
FEES, ADMINISTRATIVE REVIEW AND ANNUAL REPORTS 98
REGISTRATION AND SEARCH FEES 98
Review of decisions 98
Registrar of Personal Property Securities 99
CHAPTER 6 - JUDICIAL PROCEEDINGS 101
JUDICIAL PROCEEDINGS GENERALLY 101
CONFERRAL OF JURISDICTION 101
Transfers between courts 101
Registrar's role in judicial proceedings 102
Civil Penalty Proceedings 102
APPLICATION 103
Obtaining an order for a civil penalty 103
Civil penalty proceedings and criminal proceedings 103
Enforceable undertakings relating to contraventions of civil penalty
provisions 104
Chapter 7 - Operation of Australian and other laws 105
AUSTRALIAN LAWS AND THOSE OF OTHER JURISDICTIONS 105
CONTRACTUAL OBLIGATIONS 105
Location 106
Agreement to apply Australian law 106
Goods 107
Goods that are moved between jurisdictions 107
Goods that are normally moved between jurisdictions - 108
Intangible property 109
Intellectual property 109
ADI accounts 110
Financial property 110
Non-negotiable documents of title 111
Negotiable instruments 111
Proceeds 111
Constitutional Operation 111
RELATIONSHIP BETWEEN AUSTRALIAN LAWS 112
CONCURRENT OPERATION 112
When other laws prevail 113
When other laws do not prevail 114
Chapter 8 - Miscellaneous 116
VESTING OF CERTAIN UNPERFECTED SECURITY INTERESTS 116
EXERCISE AND DISCHARGE OF RIGHTS, DUTIES AND OBLIGATIONS 117
ENTITLEMENT TO DAMAGE FOR BREACH OF DUTIES OR OBLIGATIONS 117
Provision of information by secured parties 118
NOTICES AND TIMING 119
TIMING REQUIREMENTS 120
Onus of Proof and knowledge 121
ONUS OF PROOF 121
Knowledge 122
Forms and Regulations 123
CHAPTER 9 - TRANSITIONAL PROVISIONS 124
CONSTITUTIONAL FRAMEWORK 124
KEY CONCEPTS 125
INITIAL APPLICATION OF THIS ACT 126
EXCLUSIONS FROM INITIAL APPLICATION 127
Transitional provisions 127
MIGRATED SECURITY INTERESTS AND DEEMED REGISTRATION 127
Non-migrated security interests and temporary perfection 128
Priority protection for certain transitional security interests 129
Interests prescribed in the regulations excluded from temporary
perfection 129
Priority after temporary perfection period 131
Priority between transitional security interests, including migrated
security interests 131
Priority not on insolvency/bankruptcy or registration 133
Taking free and vesting of transitional security interests 134
Migration provisions 134
Preparatory registration for collateral secured by transitional security
interests 135
Registration defects 135
Charges and fixed and floating charges 136
REVIEW OF OPERATION OF ACT 138
TABLE OF CLAUSE REFERENCES 139
GLOSSARY
Accession
A good is an accession to other goods when it is installed in, or affixed
to, other property (unless both the accession and the other goods are
required or permitted by the regulations to be described by serial number).
Account
A monetary obligation which arises from:
. disposing of property (whether by sale, transfer, assignment,
lease, licence or in any other way); or
. 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)
but excludes an ADI account, chattel paper, investment entitlement,
investment instrument or negotiable instrument. It does not matter whether
or not the monetary obligation is earned by performance, and, if payable in
Australia, whether or not the person who owes the money is located in
Australia.
Credit card receivables are a type of 'account', as they are monetary
obligations which arise from the provision of services by the credit card
provider in the ordinary course of their business in providing services of
that kind. Credit card receivables include amounts due and payable by a
credit card holder to the credit card provider in the ordinary course of
the creditor card provider's business of providing credit for purchases or
advances made by the credit card holder. Credit card receivables also
include amounts due and payable by a credit card provider in the ordinary
course of the credit card provider's business of providing services to
merchants in respect of purchases paid for by credit card.
Accounts are able to be transferred and the interests of transferees under
a transfer of an account due from either the credit card holder to a credit
card provider or from the credit card provider to a merchant would be
security interests.
ADI account
An account held with an authorised deposit-taking institution (ADI), such
as a bank.
Advance
The payment of currency, provision of credit or giving of value. This
would include the liability of a debtor to pay interest, credit costs and
other charges or costs payable by the debtor in connection with the
advance, or the enforcement of a security interest securing the advance.
After-acquired property
Personal property acquired by the grantor after the security agreement is
made.
Attachment
The creation of a security interest in personal property which could be
enforced against that property.
Bailment
The delivery of tangible personal property to another party who acquires
possession of it. A bailment does not transfer ownership rights and the
bailor has the right to take possession at any time or in accordance with
the terms of the bailment.
Chattel paper
A writing which evidences both a monetary obligation and a security
interest in, or lease of specific goods, for example, a hire-purchase
agreement. It would not include a negotiable instrument, an investment
instrument, an investment entitlement or a document of title.
Circulating assets
Assets that could be used or transferred in the ordinary course of the
grantor's business, even if they are subject to a security interest,
including currency, negotiable instruments, inventory and certain accounts
(except where the secured party has possession or control).
Collateral
Personal property to which a security interest is attached.
Commingled property
Goods that are mixed with goods of the same kind to become part of a
product or mass so as to have lost their original identity in the product
or mass.
Consumer property
Personal property that is held by an individual and not used to any extent
in the course of an enterprise to which an ABN has been allocated.
Control
One way of perfecting a security interest in controllable property.
Currency
Any currency authorised as a medium of exchange by the laws of Australia or
any other country.
Debtor
A person (or their transferee or successor) who owes payment or the
performance of an obligation that is secured by a security interest. A
debtor would usually be the grantor of the security interest.
Financial property
Chattel paper, currency, documents of title, investment instruments and
negotiable instruments (excludes investment entitlements).
Financing statement
The data registered on the Personal Property Securities Register.
Future advance
An advance secured by a security interest which is made after the security
agreement has been concluded. In most cases, because advances are only
made after a security agreement has been entered into, future advances and
advances are the same.
Goods
Tangible personal property including crops, livestock, wool, extracted
minerals, satellites and other space objects, but excluding chattel paper,
documents of title, investment instruments, negotiable instruments,
currency or investment entitlements.
Grantor
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 paper.
Intangible property
Personal property other than financial property, goods or an investment
entitlement.
Intellectual property
Rights in a design, patent, trade mark, copyright, circuit layout or plant
breeder right.
Inventory
Personal property used in the ordinary course of business by a business
with an ABN, including property held for sale or lease, property held to be
provided under a contract for services, property held as raw materials or
as work in progress or property used or consumed as materials.
Investment entitlement
The rights held by an investment entitlement account holder arising from
the crediting of a financial product to the account (clause 15).
Investment instrument
A financial product such as a share, stock, debenture, bond, derivative,
interest in a managed investment scheme, traded financial product,
assignable option (but an assignable option of an assignable option is not
an investment instrument) or a foreign exchange contract that is not a
derivative, but excludes a negotiable instrument, investment entitlement,
document of title and the creation or transfer of a right to payment in
connection with interests in land (if the evidencing writing does not
specifically identify that land).
Migration time
The time when agencies in charge of existing Commonwealth, State and
Territory registers would start to transfer data to the PPS Register. The
migration time would be the start of the first day of the month that is 25
months after the month in which the Bill is given Royal Assent, or an
earlier time determined by the Minister.
New value
Consideration sufficient to support a contract, other than value provided
to discharge a prior debt or liability.
Perfection
A security interest could be perfected by registration, possession, control
or temporary perfection and perfection would always confer priority over
unperfected security interests in the collateral.
Personal property
Any form of property, other than land or a right or entitlement under a
Commonwealth, State or Territory law that declares that the right or
entitlement is not personal property for the purposes of the Bill.
PPS lease
A lease or bailment of goods, for an indefinite term or a term of more than
one year. Where goods would be described by serial number, a PPS lease
would only need to be a term of 90 days.
Proceeds
The identifiable or traceable personal property derived directly, or
indirectly, from dealing with collateral or the proceeds of collateral.
Purchase money security interest (PMSI)
A security interest in collateral created by a seller who secures the
obligation to pay the purchase price or a person who provides the value to
purchase the collateral. A PMSI could also be the interest of a lessor or
bailor under a PPS lease or the interest of a consignor who delivers
property under a commercial consignment.
Registration commencement time
The start of the first day of the month that is 26 months after the month
in which the Bill is given the Royal Assent, or an earlier time determined
by the Minister.
Secured party
The person who holds a security interest in collateral. The secured party
would not always be the creditor of the debtor because a security interest
could secure the performance of an obligation without the secured party
being a creditor, for example, a security trustee could hold the security
for the benefit of creditors but not itself be a creditor.
Security agreement
An agreement or other act, such as a deed of execution or a declaration of
trust, or writing evidencing the agreement or act, that creates a security
interest.
Security interest
An interest in relation to personal property created by a transaction that
in substance secures the payment or performance of an obligation, without
regard to the form of the transaction.
Value
Consideration sufficient to support a contract including the discharge of
an earlier debt or liability.
Outline
Personal property is any form of property other than land and certain
licences. It includes motor vehicles, contractual rights and
uncertificated shares. There are other rights or interests that fall
outside the concepts of real and personal property. Native title rights
and interests are one example of this and, as a result, the PPS Bill would
not apply to such rights and interests.
A security interest in personal property arises from a transaction that in
substance secures the payment or performance of an obligation. The
interest in the personal property, taken as security for a loan or other
obligation, is a security interest. The Bill would apply to transactions
which have the effect of securing a payment or other obligation, regardless
of the form of the transaction, the nature of the debtor or the
jurisdiction in which the personal property or parties are located (subject
to specified exceptions). This is known as a functional approach.
The Bill would establish a single national law governing security interests
in personal property. This would result in more certain, consistent,
simpler and cheaper arrangements for personal property securities for the
benefit of all parties.
Personal Property Security Reform would address the complexity of over 70
Commonwealth, State and Territory laws, common law rules and rules of
equity governing personal property securities. It would provide a modern
and efficient personal property securities regulatory system which is
essential for any modern financial system.
The Bill is modelled on the New Zealand, Canadian and US legislation. It
also draws on work by the United Nations Commission on International Trade
Law (UNCITRAL) and the International Institute for the Unification of
Private Law (UNIDROIT).
The Bill relies on the Commonwealth's own constitutional power and power
referred to it by the States under section 51(xxxvii) of the Constitution.
The Bill would also address the relationship between potentially
conflicting Commonwealth and State and Territory laws. The Bill
specifies where other laws prevail, for example, the Bill would not apply
to rights granted under the general law or statutory law in relation to
the control, use or flow of water, goods affixed to land or to non-
consensual interests such as liens. Furthermore, a State or Territory
would be able to expressly exclude a right, entitlement or authority
granted by a law of the State or Territory from application by the Bill.
Generally, a security interest would attach to personal property when the
grantor has rights in the collateral and value is given or the grantor does
an act which creates the security interest (such as by declaring a trust or
executing a deed). The Bill would do away with the equitable concept of
the crystallisation of floating charges and interests in after-acquired
property would attach on the acquisition of the property by the grantor.
Perfection would occur when a security interest attaches to personal
property and the secured party takes possession and/or control of the
property or registers it on the PPS Register. The Bill would also provide
short term 'temporary perfection' following certain events involving the
collateral.
The Bill specifies the circumstances when personal property would be able
to be acquired free of a security interest.
The Bill includes default rules for determining priority between competing
security interests in the same property. There are also special priority
rules for specific transactions including 'purchase money security
interests', accounts, ADI accounts, crops, livestock, accessions and
commingled goods.
The Bill also provides rules for determining priority between security
interests and other interests, such as repairers' liens and the interests
of an execution creditor.
The Bill provides a process for enforcing security agreements following
default by debtors. These rules would operate together with the
enforcement provisions in the Consumer Credit Codes and the parties' own
security agreements.
The Bill would establish a public Register of Personal Property Securities
to be maintained by a Registrar of Personal Property Securities. The
Register would contain details of registered security interests in personal
property (financing statements) and include details of the grantor and the
secured party; an address for service of notice on the secured party; a
description of the collateral and proceeds and the period of registration.
The transitional provisions would provide for the migration of data from
existing registers to the newly created PPS Register and priority rules for
security interests existing prior to the Bill coming into force.
Financial Impact Statement
The new national Personal Property Securities Register to be established by
the Bill would operate on a cost recovery basis. Use of the Register
would incur nominal charges, which would be used to cover the costs of
operating the Register. Fees are expected to be around thirty million
dollars in the first full financial year of operation but revenue estimates
cannot be finalised until the design of the Register is complete and a
commencement date has been determined.
Chapter 1 - Introduction
Preliminary
1. Clause 1 contains the short title of the Bill.
2. The Bill would commence on the day after it receives Royal Assent
(clause 2).
3. The Guide to the Bill would provide an overview of the entire Bill
(clause 3). Each Part of the Bill would also have a guide with an
overview of that specific part.
4. Subject to Part 9.3 and 9.4 of the Bill, the Bill would start to apply
at the registration commencement time in relation to the following
interests:
. a security agreement made at or after the registration commencement
time;
. a security interest (other than a transitional security interest)
arising at or after the registration commencement time;
. a transitional security agreement;
. a transitional security interest (whether arising before, at or
after the registration commencement time);
. an interest in personal property (other than a security interest)
arising at or after the registration commencement time;
. personal property of a kind prescribed by the regulations (clause
148(c));
. personal property, if data in relation to the property is given to
the Registrar (clause 330-331). (Clause 310).
5. The registration commencement time, established in the transitional
provisions, would be the day the PPS Register commences operation.
The registration commencement time would be the start of the first day
of the month that is 26 months after the month in which the Bill is
given Royal Assent, or an earlier time determined by the Minister
(clause 306(2)). If the Minister determines an earlier time to be the
registration commencement time, that time must be at least 28 days
after the migration time (clause 306(3)).
6. Despite the Bill commencing on the day after it receives Royal Assent,
the transitional provisions provide that a person would only be able
to apply to register a financing statement or a financing change
statement and the Registrar would only be able to register a financing
statement, or a financing change statement, at or after the
registration commencement time. The Registrar would also only able to
register a financing statement or a financing change statement at his
or her own initiative at or after the registration commencement time
(clause 315).
7. Part 9.4 of the Bill would set out the rules to support the migration
process and early registrations of transitional security interests.
The migration time in the Bill would be the start of the first day of
the month that is 25 months after the month in which the Bill is given
Royal Assent or an earlier time determined by the Minister
(clause 306(1). If the Minister determines an earlier time to be the
migration time, as is expected, the Minister would also determine an
earlier time for the registration commencement time. The migration
time would be determined having regard to the readiness of the PPS
Register and users of the Bill.
General application of this Act
8. The Bill would apply to security interests in goods or financial
property located in Australia or located outside Australia if the
grantor is an Australian entity (clause 6(1)).
9. For this purpose, an Australian entity would be:
. an individual who is located in Australia; (clause 235)
. a company or registrable Australian body (within the meaning of the
Corporations Act 2001);
. a corporation sole formed under a law of Australia;
. a public authority established under a law of Australia; or
. an instrumentality or agency of the Crown in right of the
Commonwealth, a State or a Territory (clause 10).
10. The Bill would also apply to security interests in intangible property
where:
. the grantor is an Australian entity;
. the account is payable in Australia;
. the assignor of an account or chattel paper is an Australian
entity;
. an assigned account or chattel paper is payable in Australia;
. the intangible property is in an ADI account; or
. the intangible property is created for by a Commonwealth, State or
Territory law, for example, licences created by a law of a State or
Territory and intellectual property created by a law of the
Commonwealth (clause 6(2)).
11. The Bill would apply to Norfolk Island, but the application of the
Bill to other external Territories would be prescribed by the
regulations and could be limited to certain provisions or only be
applicable in certain circumstances (clause 7(2)).
12. A reference anywhere in the provisions of the Bill to 'Australia'
should be read to include the prescribed external Territory (despite
s17 of the Acts Interpretation Act 1901), unless the contrary
intention appears.
13. Significant interests to which the Bill would not apply include:
. a right under the general law or Commonwealth or State and
Territory laws which apply to the control, use or flow of water
(including irrigation rights);
. an interest created by the transfer of land or rights to payment in
connection with the transfer of land but only where the writing
evidencing the creation or transfer identifies the land (mortgage-
backed securities are therefore included in the Bill);
. an interest in goods that are affixed to land; and
. an interest in a right or licence, granted under a law of a
Commonwealth, State or Territory, if the right or licence is
declared not to be personal property under the Bill.
14. Other important exclusions would include:
. the interest of a seller shipping goods under a negotiable bill of
lading;
. non-consensual charges and liens created under a law of the
Commonwealth, State or Territory;
. approved netting, close-out netting and market netting arrangements
under the Payments Systems and Netting Act 1998;
. combination of account and set-off arrangements;
. the transfer of future remuneration and unearned rights to
payments;
. the transfer of an insurance claim;
. certain interests arising under the Bankruptcy Act 1966;
. the assignment of an account where the sole purpose is for
collection of the account (this does not include the assignment of
an account to a factor);
. the assignment of an account or negotiable instrument to satisfy a
pre-existing indebtedness (clause 8).
15. The Bill would operate in complex and dynamic financial markets which
develop over time. It would need to adapt to these changes and where
appropriate, include or exclude certain market transactions which
arise and which either need to be subject to the Bill or excluded from
the application of the Bill. Therefore the regulation-making powers
in clauses 8(1)(l) and 8(3) are required to exclude or include
interests from application of the Bill. The regulation making
power could also be used to clarify whether particular kinds of
security interests are covered by the exclusion in clause 8(1).
Chapter 2 - general rules relating to security interestS
Security Agreements
1. Under the Bill, the parties to a security agreement would be free to
draft their security agreement however they wish (clause 18(1)),
subject only to the laws of the Commonwealth, State or Territory laws
and the general law (common law and equity) (clause 257(1)). However,
the Commonwealth, State, Territory or general laws would not apply to
the extent that they:
. require the registration of a security agreement,
. require the registration of the assignment of a security interest,
. require compliance with other formal requirements; or
. restrict the attachment and perfection provisions of the Bill
(clause 257(3)).
2. A security agreement would be able to provide for security interests
in after-acquired property (clause 18(2)) and security interests in
property acquired after the security agreement has been entered into
(after-acquired property) would attach without the need for specific
appropriation of that property (clause 18(1)). The Bill therefore
does away with the common law requirement that there must be specific
appropriation by the debtor for a security interest to attach after-
acquired property. However, for the security agreement to be
enforceable against the debtor's after-acquired property, the security
agreement would have to include a description of the collateral, such
as 'all after-acquired property' (clause 20(2)).
3. A description of particular collateral in a written security agreement
would be sufficient where the collateral that is described as
'consumer property', 'commercial property' or 'equipment' in the
writing evidencing a security agreement, is also described by
reference to item or class (clause 20(4)). This means that the
collateral in question would be readily identifiable in a particular
situation.
Example
The following examples would be valid descriptions:
o "All equipment located at 17 Jersey Road" where the equipment is
marked, listed or readily identifiable as equipment.
o "All coal produced at the Lil Abner Mine" where all Lil Abner Mine
coal is stored and recorded as produce of the little Abner Mine.
o "All accounts referred to in [a specified computer print-out]"
where the print-out has enough information to identify the account,
for example, the account name, account number and where the account
is held.
Examples of which would not be sufficient include:
o "All equipment located at 17 Jersey Road" when there are many goods
at 17 Jersey Road which may be equipment but are not identifiable
as such.
o "All coal produced at the Lil Abner Mine" when there no records
kept of what coal was produced at the Lil Abner Mine or where the
coal is, or where coal from a neighbouring mine is stored at the
mine but its origin is not identifiable.
o "All accounts referred to in a specified computer print-out" where
there are insufficient details on the print-out to identify the
account or the account holder.
Security interests
4. A security interest is an interest in personal property provided for
by a transaction that secures the payment or performance of an
obligation (clause 12(1)). In determining whether or not an interest
is a security interest, the Bill takes a functional approach and
focuses on the substance of the transaction.
5. Certain transactions would create security interests provided that
they secure the payment or performance of obligations, for example:
fixed and floating charges; chattel mortgages; conditional sale
agreements; hire-purchase agreements; pledges; trust receipts;
consignments; leases of tangible property (including PPS leases);
assignments, transfers of title and flawed asset arrangements (clause
12(2)).
6. A security interest would be created by a transaction that is a flawed
asset arrangements that in substance secures payment or performance of
an obligation. However, a security interest would not be created by
an arrangement under which whether one person owes another person an
obligation is conditional on the occurrence of certain events: because
there is no interest in property that can be the object of the
security interest.
Example
Person A buys its inventory from Person B on terms requiring it to
pay within 90 days. However, if Person B fails to meet its supply
obligations, then Person A is entitled to deduct an amount from the
account owed to Person B in accordance with a formula specified in
the contract. In substance, the account owed by Person A secures
performance of Person B's obligation to supply inventory to Person
A. Person B's account is a flawed asset: because Person B's
entitlement to be paid the account is conditional on it continuing
to supply inventory to Person A.
Example
An arrangement between Person B and Person A obliges Person A to
pay Person B an amount on the occurrence of certain events. Person
B does not have an interest in personal property that could be the
object of a security interest.
7. While a license itself would not be a security interest,
(clause 12(5)) a licensee would be able to grant a security interest
in a licence which is personal property, that is if:
. it is transferable (whether or not the right is exclusive and
whether or not a transfer is restricted); and
. it is not granted under legislation which declares that the licence
is not personal property under the Bill (clause 8(1)).
8. The following interests are deemed to be security interests whether or
not the transaction secures the payment or the performance of an
obligation:
. the interests of a transferee of accounts or chattel paper;
. the interests of a lessor or bailor under a PPS lease; and
. the interests of a consignor under a commercial consignment.
9. However, the enforcement provisions in the Bill would not apply to
these transactions (clause 109(1)).
Enforceability against debtors
10. A security interest would attach to property when:
. the grantor has rights in the property or the power to transfer
rights in the property to the secured party (clause 19(1)), even if
this power is subject to limitations, such as the requirement of
the another party's consent; and
. the secured party provides value or the grantor confers a security
interest through their actions (clause 19(2)) (this alternative to
the provision of value is required because a security interest
could secure an obligation without value being given).
11. 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 (clause 19(1)).
Enforceability against third parties
12. 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 (clause 20(1)).
13. Attachment of the security interest could be at any time, including
after the other requirements have been complied with (clause 21(3)).
Example
A security interest in the collateral is registered on 1 February
but the security agreement is executed later on 1 March. The
security interest only becomes enforceable against third parties on
1 March because prior to then the security interest had not
attached to the collateral.
14. For a written security agreement to be enforceable against third
parties:
. it would have to be signed or intentionally adopted by the grantor,
in the way which is specified in the agreement (clause 20(2));
. it would have to describe the specific collateral or describe it as
'the grantor's all present and after-acquired property' or 'the
grantor's all present and after-acquired property' with specified
exceptions (clause 20(2));
. if collateral were to be described as 'consumer property',
'commercial property or 'equipment', it would also need to be
described by reference to the item or class (clause 20(4));
. if collateral were to be described as 'inventory', it would only be
enforceable while that property is held as inventory (clause
20(5));
. a description of the proceeds would not be required for the
agreement to be enforceable in respect of the proceeds (clause
63(7)).
15. A security interest could be enforceable against a third party in
respect of particular personal property even though the security
interest is not enforceable in respect of other personal property to
which the security interest has attached.
16. Unless the parties specify otherwise in a security agreement, a
security interest would attach when the requirements for attachment
are satisfied (clause 19(3)). The parties could agree to postpone the
time for attachment, but merely referring to the security interest as
a 'floating charge', would not by itself postpone attachment (clause
19(4)).
17. For the purposes of deemed security interests (that is, security
interests in: accounts and chattel paper transferred to a transferee;
goods which are leased to a lessee under a PPS lease; goods consigned
under a commercial consignment to a consignor or sold to a purchaser
under a conditional sale or retention of title agreement) the grantor
(transferee, lessee, consignee or purchaser) would be deemed to have
rights in the goods, for the purpose of attachment, when the grantor
obtains possession of the collateral (clause 19(5)).
Perfection
18. Under the Bill, perfection of security interests would be important to
obtain priority over competing security interests in the same
collateral.
19. A security interest would be perfected once the security interest
attaches to the collateral (clause 21(1)) and the secured party
provides public notice of its security interest by either:
. registering an interest in any collateral;
. taking possession of goods;
. temporarily perfecting a security interest in the collateral; or
. taking control of an investment instrument; an ADI account; a right
evidenced by letters of credit; an investment entitlement or a
negotiable instrument (clause 20(2)).
20. Some security interests could, therefore, be perfected without
registration on the PPS Register. Where the collateral is goods
(tangible personal property), possession by the secured party would be
sufficient to perfect the security interest and control would be
sufficient to perfect a security interest in the case of investment
instruments, ADI accounts, certain rights evidenced by letters of
credit, investment entitlements and negotiable instruments (clause
20(2)).
21. Where goods are held by a bailee and a security interest has attached
to the collateral, the security interest would be able to be perfected
by:
. the secured party registering the collateral;
. the bailee taking possession of the collateral on behalf of the
bailor;
. the bailee issuing a document of title to the goods in the name of
the secured party; or
. the secured party obtaining a perfected security interest, for
example by possession, in the negotiable document of title (clause
22(1)).
Example
Bank A finances Debt A's purchase of portable steel toilets
manufactured in Melbourne. Debt A is located in Sydney, so Debt A
arranges for the toilets to be freighted to Sydney. The carrier
issues a negotiable document of title and forwards this to Bank A.
Once Bank A receives possession of the negotiable document of
title, it has a perfected security interest in the toilets. Where
the secured party is able to take possession of the document of
title within 5 business days of its issue, the security interest
would be deemed to be perfected from the moment the document of
title was issued.
22. A security interest in any of the following collateral could also be
temporarily perfected for the period of time specified in the Bill:
. collateral moved to Australia (clause 39-40);
. proceeds not included in the registered description of collateral
or arising from collateral perfected in another way (clause 33(2)-
(3));
. transferred collateral (clause 34);
. goods or documents of title, perfected by the bailee's possession
and returned to the grantor or debtor for dealing (clause 35);
. negotiable and investment instruments, perfected by the bailee's
control or possession, and returned to the grantor or debtor for
dealing (clause 36).
23. This period of temporary perfection period would give the secured
party an opportunity to perfect their interest by registration,
possession or control.
24. A single registration of collateral would be able to perfect more than
one security interest (clause 21(4)).
Possession and control of personal property
25. Possession and control of personal property would be important as two
of the four ways of perfecting a security interest.
Possession
26. A secured party would be able to perfect a security interests in
collateral by possession (other than possession as a result of seizure
or repossession) (clause 21(2)(a)).
27. It would not be possible to perfect a security interest in an
intangible by possession. However, as investment instruments, chattel
paper or negotiable instruments are the physical embodiment of
intangible rights, possession of these documents would perfect a
security interests in the associated intangible property.
28. A person would have possession of a negotiable instrument not
evidenced by an electronic record when physical possession of the
instrument is held by the person, or another person on their behalf
(clause 24(4)).
29. A secured party would have possession of chattel paper evidenced by an
electronic record only if there is a single authoritative copy of the
record that identifies the secured party as the assignee of the
record, which is maintained by the secured party (copies would need to
be made with the secured party's agreement and be identifiable as
authorised copies) (clause 24(5)).
30. A person would have possession of an investment instrument evidenced
by a certificate only if the certificate specifies the person entitled
to the investment instrument, it is transferable by registration of
the transfer by the issuer of the investment instrument and the person
or someone on their behalf (not the grantor or debtor) has possession
of the instrument (or, if another person is the registered owner, they
have acknowledged in writing, possession on behalf of that person)
(clause 24(6)).
31. Possession of a document of title would constitute possession of the
collateral (clause 24(3)(b)).
32. Possession under the Bill would not equate to the common law meaning
of possession. Possession would 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).
Example
Finance A has a security interest in a painting owned by Grantor A.
Finance A perfects the security interest by taking possession of
the painting on 1 April 2009. Finance A returns the painting to
Grantor A on 28 April 2009 for a dinner party held by Grantor A.
Finance A resumes possession on 1 May. Finance A's security
interest ceased to be perfected on 28 April. Perfection of the
security interest commenced from 1 May 2009.
Control
33. 2.31 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.
34. It would be impractical to require perfection by registration or
possession of ADI accounts; investment entitlements; investment
instruments; uncertificated negotiable instruments; rights evidenced
by certain letters of credit and satellites. Therefore these kinds of
collateral could be perfected by control (clause 21(2)(c)).
35. A secured party would have control of an ADI account where:
. the secured party is the ADI;
. the secured party could direct dispositions from the ADI without
the grantor's agreement (even if the grantor also retains the right
to direct dispositions from the account) (clause 25(2)); or
. the secured party is the ADI's customer for the account, that is,
the secured party would have the right (not necessarily exclusive),
to direct dispositions from the account. (Clause 25(1)).
Example
Bank A gives a loan to its customer Debtor A who already has a
deposit account with Bank A. Bank A does not perfect a security
interest in the account. Debtor A then grant's Grantor A the right
to instruct Bank A to make dispositions from the account subject to
Debtor A's consent. Debtor A defaults on its loans to both Bank A
and Grantor A and both attempt to enforce a security interest in
Debtor A's account. Because Bank A is the ADI it did not need to
take any specific action to obtain a perfected security interest in
Debtor A's account. Grantor A did not obtain control (and
therefore a perfected security interest) in the account, because
it's right to instruct Bank A to make dispositions required Debtor
A's consent.
36. A secured party would have control of an investment entitlement while
there is an agreement between the secured party, the grantor and the
intermediary to the effect that any instructions issued by the grantor
are subject to approval by the secured party and permitting the
secured party to deal in the entitlement without the consent of the
grantor (clause 26(1)). The secured party would have control of an
investment entitlement even if the person in whose name the
intermediary maintains the account retains the right to make
substitutions for the instrument, to originate instructions to the
issuer or to otherwise deal with the instrument (clause 26(2)).
37. A person would have control of a certificated or uncertificated
investment instrument while they are registered by the issuer as the
registered owner of the investment instrument (clause 27(2)).
38. A person would have control of a certificated investment instrument
while they have possession of the instrument and the power to transfer
or otherwise deal with the instrument (clause 27(3)).
39. A person would have control of an uncertificated investment
instrument:
. where they have agreed with the registered owner of the instrument
that they may deal in the instrument (clause 27(4));
. where another person is the registered owner of the instrument on
behalf of that person but that person can deal in the instrument
(clause 27(5));
. if the registered owner acknowledges in writing, that they hold the
instrument on behalf of that person and that person is able to deal
in the instrument (clause 27(6)).
40. A secured party would have control even if the registered owner
(including the grantor) retains the right to make substitutions for
the instrument, to originate instructions to the issuer or to
otherwise deal with the instrument (clause 27(6)).
41. A secured party would have control of the rights evidenced by a letter
of credit only to the extent that the issuer consents to assigning the
proceeds of the letter of credit to the secured party (clause 28).
42. A secured party would have control of an uncertificated negotiable
instrument while the instrument can be transferred according to the
rules of the clearing and settlement facility and the secured party is
able to deal in the instrument (clause 29(1)). A secured party would
have control even if the registered owner (including the grantor)
retains the right to make substitutions for the instrument, to
originate instructions to the issuer or to otherwise deal with the
instrument (clause 29(2)).
Attachment and perfection: specific rules
Proceeds and transfer
Attachment of security interest to proceeds
43. When collateral gives rise to proceeds, the security interest would:
. automatically attach to any proceeds arising from a dealing in the
collateral unless the security agreement provides otherwise; and
. continue in the collateral unless the secured party expressly or
impliedly authorised the dealing giving rise to the proceeds.
(Clause 32(1)).
44. Personal property would only be proceeds if the grantor had an
interest in the proceeds (not an interest arising from the enforcement
of the security interest) or the power to transfer rights in the
collateral to the secured party (clause 31(3)). This reflects the
attachment principle that the grantor must have an interest in the
collateral or the power to transfer the collateral to another person
(clause 19(2)(a)).
Example
Grantor A grants Bank A a security interest in its sapphires.
Grantor A then transfers the sapphires to Person A in exchange for
rubies without Bank A's authorisation. Bank A would have a
security interest in the rubies as proceeds of the sapphires.
45. The Bill would not require that there be a fiduciary relationship
between the secured party and the person who deals in the collateral,
for the proceeds to be identifiable or traceable (clause 31(2)).
46. The security interest in the proceeds would have the same priority
time as the security interest in the original collateral (clause
32(5)).
47. Collateral would give rise to proceeds when the proceeds are
identifiable or traceable personal property derived directly or
indirectly from:
. a dealing with the collateral (or proceeds of the collateral);
. the right to an insurance payment or other payment as indemnity or
compensation for loss or damage to the collateral;
. a payment made to discharge or redeem the collateral when the
collateral was chattel paper, intangible property, an investment
instrument, an investment entitlement or a negotiable instrument;
. the right of a licensor to receive payments under any intellectual
property agreement;
. rights arising out of or property collected or distributed from an
investment instrument or investment entitlement (clause 31(1)).
Example
Grantor A is the owner of a patent and has granted a security
interest in the patent to Bank A. Grantor A has also granted a
licence of the patent to Manufacturer A, under which Manufacturer A
is obliged to make payments to Grantor A. Bank A has a security
interest in the patent as original collateral, and in the licence
payments as proceeds.
48. Proceeds would include proceeds of proceeds (clause 31(1)(a)).
49. When the security interest continues in the collateral, a secured
party would be able to enforce their security interest against either
or both of the collateral or the proceeds (clause 32(2)).
50. Where a secured party proceeds 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 (clause 32(2)-(3)).
51. Where the secured party proceeds against the collateral alone, an
innocent purchaser of the collateral would have rights against the
transferor to recover the consideration they provided. Where the
secured party proceeds against the proceeds alone, an innocent third
party would retain the collateral.
Perfection of security interest in proceeds
52. At the time of entering into a security agreement, a secured party
cannot always anticipate that proceeds that may arise from the
collateral and therefore a security interest in proceeds would be
perfected by a registration of the collateral if:
. the description of the collateral includes a description of the
proceeds which would be sufficient for a separate perfected
security interest in the proceeds;
. the description of the collateral includes a description of the
proceeds because they are of the same kind;
. the proceeds consist of currency, cheques, an ADI account, a right
to an insurance payment or another payment as indemnity or
compensation for loss to the collateral. (Clause 33(1)).
53. A registration which describes the collateral as all the grantor's
present and after acquired property would perfect a security interest
in proceeds held by the grantor.
Example
Grantor A grants a security interest in her funicular car to Bank
A. Grantor A then exchanges her funicular car for her neighbour's
boat. The security interest would automatically attach to the
boat. The security interest in the boat would only be perfected if
Bank A included in the financing statement a description of any
proceeds from the funicular car that included the boat.
54. A security interest in proceeds that is not perfected, but that arises
from a perfected security interest in the collateral, would be
temporarily perfected for 5 business days after the collateral gave
rise to the proceeds (clause 33(2)). During this period of temporary
perfection, the secured party could ensure the continuous perfection
of the security interest in the proceeds after the end of the end of
the 5 business days, by perfecting the interest in one of the usual
ways (registration, possession or control) (clause 33(3)).
Transfers of property
55. A security interest would not continue in transferred collateral where
the Bill provides that a transferee would acquire collateral free of
the security interest (clauses 41-55) or where the secured party has
given express or implied authority for the transfer to be made free of
the security interest (clause 32(1)).
56. In other cases, where collateral which is subject to a perfected
security interest is transferred, the security interest would be
temporarily perfected for a period starting from the time of transfer
and ending at the earliest of:
. the end of the month 24 months after transfer;
. if the security interest was perfected by registration - the end
time for registration;
. if another perfected security interest attaches to the collateral
and the original secured party consented to the transfer - 5
business days after transfer;
. if another perfected security interest attaches to the collateral
and the original secured party did not consent to the transfer of
the collateral - 5 business days after the original secured party
acquires the knowledge required to perfect their security interest
by registration (clause 34(1)).
57. The period of temporary perfection would give the secured party time
to perfect their security interest in the property.
Example
Grantor A grants Bank A a security interest in its orchids. Bank A
perfects the security interest by registration. Grantor A sells
the orchids to Person B without Bank A's authorisation. Grantor A
does not take the orchids free of Bank A's security interest. The
security interest continues in the orchids and is temporarily
perfected until the earlier of 24 months, the end of the
registration or 5 business days after Bank A becomes aware of the
transfer.
Collateral returned to grantor or debtor
Collateral returned from bailee
58. When a security interest in goods is perfected by the bailee's
possession of the goods, or the secured party's possession of the
document of title, and the property or document of title is returned
to the grantor for sale, exchange or other action in preparation for
sale or exchange, the security interest would be temporarily perfected
for 5 business days (clause 35).
Negotiable instruments and investment instruments
59. When a security interest in a negotiable instrument or in an
investment instrument is perfected by possession or control, and
possession or control of the document is given to the grantor for
sale, exchange, presentation, collection, renewal or registration for
transfer, the security interest would be temporarily perfected for a
period of 5 business days (clause 36).
Following sale or lease
60. When a person acquires goods free of a security interest because of a
sale or lease of the goods, the security interest would reattach to
the goods when the grantor or a transferee of chattel paper regains
possession of the goods as a result of:
. the original contract of sale or lease being rescinded or expiring;
. the transferee having seized the goods to enforce the security
agreement;
. the grantor having repossessed the goods to enforce the contract of
sale or lease (clause 37(1)).
61. If the security interest was perfected by registration prior to
acquisition, and the registration is effective at re-possession, then
the perfection would be deemed to be continuous (clause 37(2)).
Accounts and chattel paper
62. When an account or chattel paper, arising from the sale or lease of
goods, is transferred to another person, the transferee would be taken
to have a security interest in the goods, if the goods come back into
the possession of the transferor or transferee as a result of:
. the original contract of sale or lease being rescinded or expiring;
. the transferee having seized the goods to enforce the security
agreement;
. the grantor having repossessed the goods to enforce the contract of
sale or lease;
. any other circumstances prescribed by the regulations. (Clause
38(1)).
Example
Dealer A sells flaring and beading machines on credit to Purchaser
A. Dealer A sells the proceeds of these transactions (an account)
to Discount A. The flaring and beading machines turn out to be
defective and Purchaser A rescinds the contract and returns the
machines to Dealer A. Discount A acquires a security interest in
the machines to secure payment of the balance of the account.
63. The deemed goods security interest would be deemed to attach at the
time of return or re-possession (clause 38(2)). If the transferor or
transferee has a perfected security interest in the account or chattel
paper when the goods are returned or re-possessed, then the security
interest would be temporarily perfected from the time of possession
until 5 days after the time of return or re-possession (clause 38(3)-
(4)).
Relocation of collateral or grantor to Australia etc
Main rule
64. When collateral continues to be subject to an enforceable security
interest after being moved to Australia, the security interest would
be taken to be continuously perfected from when the security interest
was registered or became enforceable against third parties under the
foreign law until the collateral is located in Australia (clause 39(1)-
(2)).
65. If the security interest is continuously perfected as above, it would
also be temporarily perfected from the time of relocation until 56
days thereafter or 5 days after the secured party acquires actual
knowledge that the property is relocated in Australia (clause 39(3)).
Intangible and financial property
66. If the grantor of a security interest in intangible property or
chattel paper, investment instruments, currency, documents of title
(but not intellectual property, intellectual property licences or ADI
accounts) relocates to Australia or transfers the collateral to a
person located in Australia and the security interest becomes governed
by Australian law, then the security interest would be taken to be
continuously perfected from the time when it was registered under the
foreign jurisdiction, or became enforceable against third parties,
until relocation (clause 40(2)).
67. If the security interest is continuously perfected (as above), then it
would be temporarily perfected starting from the time of relocation
and ending at the earliest of 56 days thereafter or 5 business days
after the secured party acquires actual knowledge of the relocation
(clause 40(3)).
Taking personal property free of security interests
68. A security agreement would be effective according to its terms (clause
18) and would continue in collateral dealt with by the grantor, unless
the secured party expressly or impliedly authorised a dealing giving
rise to proceeds (clause 32).
69. However, a person would acquire an interest in personal property free
of a security interest in the circumstances set out in Part 2.5 of the
Bill.
70. The concurrent application of more than one of these rule to the same
situation, or the application of only one of the rules to the same
situation, would not affect the right of a transferee to take the
property free of a security interest.
71. The provisions on taking free of security interests would not apply
where the transferee's interest is also a security interest, except
where the property is an investment instrument or investment
entitlement (clause 42).
72. The provisions refer to 'taking free of a security interest' and not
'extinguishment' because 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.
73. In some circumstances, a person would have to provide either value or
new value in order to acquire an interest in personal property free of
a security interest. A person provides 'value' when they provide
consideration that is sufficient to support a simple contract. A
person could also provide 'value' through a reduction or discharge of
an existing liability. However, in order to provide 'new value', the
satisfaction of an antecedent debt or liability would be insufficient,
and something more would have to be given. (Clause 10). The
requirement for new value ensures that the grantor obtains something
that the secured party could proceed against if their property is
transferred free of the security interest
Unperfected security interests
74. A person who acquires personal property that is subject to an
unperfected security interest would acquire it free of the security
interest if they provide new value and are not a party to the
transaction that provides for the security interest (clause 43).
Example
Grant A obtains secured finance from Bank A to purchase a forklift.
Bank A does not register the forklift on the PPS Register or
perfect it using the other perfection methods. Grant A sells the
forklift to Buy A. Buy A would acquire her interest in the
forklift free of Bank A's security interest.
75. These arrangements provide an incentive for secured parties to perfect
their security interests.
Serially numbered personal property
76. The Regulations would specify the kinds of personal property that may
or must be described by serial number on the PPS Register and could
include the following:
. motor vehicles;
. watercraft;
. aircraft;
. registered trade marks, patents, designs and plant breeder's
rights.
77. In order to guarantee the ability of a prospective buyer or lessee to
rely on a search of the PPS Register, and to protect a security
interest against an innocent acquisition, the Bill would provide that
a person would take property free of a security interest when:
. the buyer or lessee provides new value;
. the property is required under the regulations to be described in a
registration by reference to a serial number;
. a search of the register immediately before the time of the sale or
lease, by reference only to the serial number of the property,
would not have disclosed the registration on the PPS Register
(clause 44(1)).
Example
Person A owns a number of collectable motor vehicles in the course
of running a business of hiring out vehicles for special events.
Person A secures a loan from Bank A against the motor vehicles.
Bank A perfects its security interest in the vehicles by
registering against all of Person A's motor vehicles, but does not
register each motor vehicle individually by their serial numbers.
Person B buys one of the motor vehicles from Person A. A search of
the PPS Register by reference to the motor vehicle's serial number
would not disclose that Bank A has a security interest. Person B
would take her interest in the motor vehicle free of Bank A's
security interest in the motor vehicle.
Example
Person A owns a number of collectable motor vehicles in the course
a business of hiring out vehicles for special events. Person A
secures a loan from Bank A against the motor vehicles. Bank A
perfects its security interest in the vehicles by registering
against all of Person A's motor vehicles generally, but does not
register each motor vehicle individually by its serial number.
Person B buys one of the motor vehicles from Person A. A search of
the PPS Register by reference to the motor vehicle's serial number
would not disclose that Bank A has a security interest. Person B
searches the register against Person A and discovers the Bank's
registration against Person A in relation to motor vehicles
generally. Person B is not aware that her purchase of the motor
vehicle constitutes a breach of the Person A's security agreement
with Bank A. Person B would take her interest in the motor vehicle
free of Bank A's security interest in the motor vehicle.
Example
Buyer A buys a motor vehicle from Person A. Finance A has
registered against the motor vehicle on the PPS Register by
reference to its serial number. Buyer A would not take the car
free of Finance A's security interest, as a search of the PPS
Register would have disclosed Finance A's registration against the
motor vehicle. Had Buyer A searched the PPS Register, she would
have found Finance A's registration and been aware that she would
not be able to buy the motor vehicle free of Finance A's security
interest.
78. A buyer or lessee would not take their interest in the property free
of the security interest if:
. the transferee holds the property, or holds the property on behalf
of another, as inventory for a period after the sale or lease; or
. the transferee has actual knowledge that the sale or lease
constitutes a breach of the relevant security agreement (unless the
property is of a kind prescribed by the regulations).
(Clause 44(2)).
79. When personal property is bought or leased with the intention of using
it predominantly for personal, domestic or household purposes, the
intention of the buyer or lessee is to be determined when the new
value is first given for the sale or lease. This might be when the
buyer or lessee provides a deposit (which could be in advance of the
parties making a binding agreement to buy or lease the property)
(clause 44(3)).
80. This exception against taking inventory free of security interests
means that a purchase or lease of serial numbered property (such as a
motor vehicle) by a dealer in the property from a person who held the
property as commercial property would not be free of the security
interest merely because the financier of the seller or lessor had
elected to register against the seller's property generally and not in
relation to individual serial numbered items.
Example
Finance A finances motor vehicles held by Person A as commercial
property. Motor vehicles have been prescribed as serial numbered
property. Finance A registers its security interest in Person A's
motor vehicles generally, and not by reference to their individual
serial numbers. Dealer A buys a motor vehicle from Person A and
holds the vehicle as inventory in the course of its business of
buying and selling motor vehicles. Dealer A takes the motor
vehicle subject to Finance A's security interest.
Special rules relating to motor vehicle purchases
Incorrect or missing serial number
81. A person who buys or leases a motor vehicle (of a kind prescribed in
the regulations) would take their interest in the vehicle free of a
security interest if:
. the person acquires the motor vehicle for new value;
. the regulations provide that the motor vehicle is of a kind that
may or must, be described by serial number;
. a search of the register immediately before the time of the sale or
lease, or on the previous day, by reference only to the serial
number of the vehicle, would not have disclosed a registration on
the PPS Register; and
either:
o the seller or lessor is the person who granted the security
interest; or
o the seller or lessor is another person who is in possession of the
motor vehicle, provided the person who granted the security
interest has lost the right to possess the motor vehicle (or is
estopped from asserting an interest in the vehicle) (clause 45(1)).
82. However, the buyer or lessor 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
interest (clause 45(2)).
83. Therefore, if the person acquiring the property did not have knowledge
of the security interest and a search of the PPS Register at any time
on the day that the interest was acquired, or on the previous day, by
reference to the serial number would not have disclosed a registered
security interest, then that person would acquire the motor vehicle
free of the security interest (clause 45).
84. This provision is based on s7(1A) of the Chattel Securities Act 1987
(Vic) (the 'day and a half rule') and s8(3)(b) of the Registration of
Interests in Goods Act 1986 (NSW), but unlike the existing State
provisions, these provisions would not compel a transferee to
undertake the search prior to purchase or lease (clause 45(1)).
85. This provision would have effect only in limited circumstances because
in most cases, where personal property is required to be registered by
serial number and the serial number is incorrectly recorded or
missing, the registration would be ineffective, and the transferee
would take their interest free of the security interest.
Taking from prescribed persons
86. A buyer or lessee of an interest in a motor vehicle would ordinarily
acquire it free of a security interest, if the regulations provide
that motor vehicles of that kind may or must be described by serial
number, and the seller or lessor is in a class of persons prescribed
by the regulations (clause 45(3)).
87. The purpose of this provision is to allow a person to buy or lease a
motor vehicle from a motor vehicle dealer, free of a security
interest, without the need to search the PPS Register prior to
acquiring their interest.
Example
Grant A is a motor vehicle dealer. Grant A has cars in stock
financed under a floor plan arrangement with bailment company
Finance A. Under the floor plan arrangement Finance A purchases
the vehicles from Manufacturer A and allows Grant A to retain them
on its premises for sale. Finance A registers its security
interest in each vehicle. Buy A wants to purchase a car from Grant
A with finance provided by Bank B. Neither Buy A nor Bank B need
to search the PPS Register as the transferor (Grant A) is a motor
vehicle dealer. Buy A acquires its interest in the car free of
Finance A's security interest.
88. However, the person would not take the vehicle free of the security
interest if:
. the secured party was in possession of the vehicle immediately
before the buyer or lessee acquired their interest;
. when the vehicle is being sold (not leased) - the person buys the
vehicle at a sale held by or on behalf of an execution creditor;
. the buyer or lessee holds the vehicle as inventory, or holds the
vehicle as inventory on behalf of another person; or
. the transferee has actual or constructive knowledge that the sale
or lease constitutes a breach of the security agreement (clause
45(4)).
89. Many buyers or lessees of motor vehicles from motor vehicle dealers
would be aware that motor vehicles held by dealers as inventory are
subject to a security interest but this knowledge alone would not
disqualify buyers and lessees.
Example
Grant A is a motor vehicle dealer. Bank A has perfected a security
interest in all of the vehicles at Grant A's showroom, by
registering each vehicle against its serial number. The security
agreement obliges Grant A to sell the vehicles for an amount
determined in accordance with a formula agreed to by Grant A and
Bank A, with a minimum price of $X for any vehicle. Buy A is an
associate of Grant A, though not a motor vehicle dealer, and is
aware that Grant A is obliged to sell the vehicles for at least $X.
Grant A sells a motor vehicle to Buy A for an amount significantly
less than $X. Buy A would not acquire the motor vehicle free of
Bank A's security interest.
Transactions in the ordinary course of business
90. Generally, a person who acquires an interest in personal property in
the ordinary course of the vendor's business of dealing with property
of that kind would acquire the interest free of any security interest
granted by the vendor, whether perfected or unperfected (clause
46(1)). This would not give the transferee protection from all
security interests, only those security interests that have been
granted by the transferor.
91. However, this provision would not apply if:
. in the case of personal property that may or must be described by
serial number, the transferee holds the property, or holds the
property on behalf of another, as inventory; or
. the transferee has actual or constructive knowledge of the security
agreement (clause 46(2)).
92. Purchasers are only protected when they acquire their interest in the
property 'in the ordinary course of the seller's or lessor's business
of selling or leasing personal property of that kind'(clause 46(1)).
Generally, this would be a question of fact in each case but a person
would not take free in the ordinary course of the seller's business if
the sale is made at a time of financial stress and the sale would not
have been made but for the seller's financial stress.
Example
Grant A is primarily in the business of leasing, repairing and
rebuilding cranes. Grant A's practice is to sell a crane if it
becomes obsolete, deteriorated beyond its useful life, or difficult
to lease. Grant A sells one of its cranes to Buy A. The sale is
the only sale that occurs that year. While the sale of the crane
to Buy A would be in the ordinary course of Grant A's business, the
sale would not be in the ordinary course of Grant A's business of
dealing with property of that kind.
Example
Grant A is primarily in the business of raising and selling
livestock. Grant A and Buy A regularly exchange livestock for
feed. The exchange of the livestock for feed would be in the
ordinary course of business despite it being secondary to Grant A's
primary business of dealing in livestock.
Low value consumer property
93. A person who buys or leases personal property that they intend to use
predominantly for personal, domestic or household purposes would take
the goods free of any security interests provided that:
. their intention to use the personal property predominantly for
personal, domestic or household purposes existed at the time of the
purchase of lease;
. the person acquires their interest for new value; and
. the market value of the consideration provided by the purchaser or
lessee (at the time of payment) is not more than $5,000 (or a
greater amount prescribed in the regulations) (clause 47(1)).
94. However, the buyer or lessee would not take the property free of the
security interest if:
. the property is required under the regulations to be described in a
registration by serial number;
. the person has actual or constructive knowledge that the sale or
lease is a breach of the security agreement; or
. at the time the contract for sale or lease was entered into:
o the market value of the personal property is more than $5,000; and
o the person believed the market value of the personal property to be
not more than $5,000 (clause 47(2)).
95. This provision would enable consumer to purchase low-value consumer
goods without the need to search the PPS Register.
Example
Ms X buys a chainsaw at a garage sale for $2,000 with the intention
to use it in her hobby workshop. Ms X is not aware of any security
interest in the chainsaw. The market value of the chainsaw is less
than $5,000. Ms X would take the chainsaw free of the security
interest.
Example
Mr Y buys an antique chair at a garage sale for $4,000. Mr Y does
not believe the market value of the chair to be more than $5,000
and while similar chairs are selling for $6,000 at the local
antique shop, Mr Y does not know this. Mr Y would take the chair
free of the security interest.
Example
Mr Y buys an antique chair at a garage sale for $4,000. Mr Y knows
that similar chairs are selling for $6,000 at the local antique
shop. Mr Y would not take the chair free of the security.
Security interests in currency
96. A transferee of currency would acquire their interest in the currency
free of any security interests in that currency if, at the time of
acquiring the currency, the transferee had no actual or constructive
knowledge of the security interest (clause 48).
97. This rule recognises the importance of the negotiability of currency
in ordinary commerce.
Security interests in investment instrument or entitlement in the ordinary
course of trading
98. A person who buys an investment instrument or entitlement in the
ordinary course of trading on a prescribed financial market (within
the meaning of the Corporations Act 2001) takes an instrument or
entitlement free of any security interests (clause 49). This
provision protects the integrity of transactions in prescribed markets
such as the Australian Stock Exchange.
Security interests in investment instruments
99. A person would acquire an interest, including a security interest,
(clause 42) in an investment instrument free of other security
interests if:
. the person acquired their interest by a consensual transaction for
value;
. the person took possession or control of the investment instrument;
and
. the person had no actual or constructive knowledge that the
acquisition constituted a breach of the security agreement that
provided for the security interest (clause 50).
Security interests in investment entitlements
100. A person would acquire an interest in an investment entitlement free
of a security interest 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; and
. 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 product (clause 51).
Temporarily perfected security interests
101. A security interest would be temporarily perfected in a number of
circumstances, despite the secured party not having perfected it by
registering a financing statement or by taking possession or control
of the collateral, where:
. a bailee takes possession of goods and issues a negotiable
instrument of title (clause 22(2));
. proceeds arise from collateral (clause 33(2));
. collateral is transferred (clause 34(1));
. goods are returned to a grantor for dealing (clause 35(1));
. negotiable instruments or investment instruments are given to the
grantor for sale (clause 36(1));
. goods, which are the subject of transferred account or chattel
paper, are returned (clause 38(3));
. collateral is relocated to Australia (clause 39(1)); or
. the grantor moves to Australia (clause 40(2)).
102. Transferees that buy or lease collateral in which the security
interest is temporarily perfected (other than under clause 322) would
acquire their interests free of the security interest where they
provide new value and do not have actual knowledge that the purchase
or lease constitutes a breach of the security interest (clause 52).
103. This protects innocent transferees who acquire collateral subject to a
temporarily perfected security interest, as searching the PPS Register
would not have revealed a registration.
Example
Bank A has perfected its security interest in goods by arranging
for a bailee to possess the goods on its behalf. The property is
returned to Grant A for sale. The security interest would be
temporarily perfected for five business days. If Grant A becomes
insolvent during those five days, Bank A's security interest would
not be void because of the temporary perfection. However, if Grant
A sells the property to a third party during the five days, in
circumstances that constitute a breach of the security agreement,
the transferee would take the collateral free of Bank A's security
interest, despite the secured party's interest being temporarily
perfected.
Rights of secured party and transferee
104. The ability of transferees to take security interests free of security
interests would have consequences for secured parties and transferees
as follows:
. the rights of the secured party to the relevant property, or an
accession to the property, are subrogated to the rights (if any) of
the transferor and any predecessor of the transferor
(clause 53(2)); and
. a transferee who makes a part payment before receiving notice of
the secured party's rights (clause 53(2)) would have their
obligation discharged to the extent of the payment (clause 53(3)).
Priority between Security Interests
Priority of security interests generally
105. An item of personal property could secure payments or obligations owed
to more than one secured party. When more than one secured party
becomes entitled to the collateral under their security agreement, the
priority rules determine (for example):
. the order in which proceeds of the collateral realised as part of
an enforcement process are to be distributed (clause 140);
. whether a secured party would be entitled to notice that another
secured party has commenced enforcement process in relation to the
collateral (clause 130);
. whether a secured party would be entitled to take over an
enforcement process initiated by another secured party (clause
123).
106. The priority rules would apply only if two or more security interests
are attached to the same collateral.
107. The priority rules would not apply where the collateral has been
acquired free of any competing security interests or where only one
security interest is attached to the collateral.
Example
Grant A is a dealer in antiquarian books. Grant A grants a
security interest in its antiquarian books to Bank A. Grant A
later grants a security interest in the same antiquarian books to
Bank B. Neither Bank A nor Bank B perfect their security interest
in the books. Grant A sells one of the antiquarian books to Buy A.
Buy A takes the book free of the security interests previously
held by Bank A and Bank B (clause 43). There is no priority
contest between Bank A and Bank B.
Example
Grant A is a dealer in antiquarian books. Grant A grants a security
interest in its antiquarian books to Bank A. Grant A later grants
a security interest in the same antiquarian books to Bank B. Both
Bank A and Bank B perfect their security interest. Grant A sells a
book to Buy A in the ordinary course of Grant A's business. Buy A
knew that the transfer would be a breach of the security agreement
with Bank A. Therefore, Buy A acquired the books subject to Bank
A's security interest, but not Bank B's security interest. It is
not necessary to apply the priority rules because Buy A took the
books free of Bank B's security interest (clause 48).
108. The Bill includes general priority rules (clause 55-61) and specific
priority rules for:
. purchase money security interests (clause 62-65);
. security interests in transferred collateral (clause 66-68);
. creditors and purchasers of negotiable instruments, chattel paper
and negotiable documents of title (clause 69-72);
. competing security interests and declared statutory interests
(clause 73); and
. execution creditors, ADI accounts and returned tangible property
(clause 74-77).
Default priority rules
109. The order in which the security interests attach to the collateral is
relevant only if both interests are unperfected, in which case
priority would be determined by the order of attachment (clause
55(2)).
110. When two unperfected security interests attach at the same time, they
would have the same priority under the Bill. However, one of the
secured parties will be able to achieve priority over the other by
registering their security interest.
111. A perfected security interest would have priority over an unperfected
security interest in the same collateral (clause 55(3)).
Example
Grant A grants a security interest in its oil paintings to Bank A,
and later grants a security interest in the same oil paintings to
Bank B. Bank B registers the security interest, while Bank A does
not. The security interest held by Bank B would have a higher
priority than the security interest granted by Bank A, despite
Grant A having granted the first security interest to Bank A.
112. Where two or more security interests are both perfected, priority
would be determined by the priority time for each security interest
(clause 55(4)).
113. The priority time for a security interest would be the initial
perfection time only if it the security interest remained continuously
perfected after that time (clause 55(6)). A security interest would
be continuously perfected only if it is has been perfected at all
times since the initial perfection time (clause 56(1)). A security
interest could be continuously perfected by separate contiguous or
overlapping perfections (clause 56(2)).
Example
Grant A purchases a Bentley with finance provided by Finance A.
Finance A registers the security interest in May and provides the
finance to Grant A in June. Grant A later obtains further finance
from Finance B, which is also secured against the Bentley. Finance
B registers this security interest in June. The security interest
held by Finance A would have priority over that held by Finance B,
because the priority time for Finance A's security interest
preceded that of Finance B's.
Example
Grant A is a dealer in stamps. Grant A purchases a rare stamp with
finance provided by Bank A. In July, Bank A perfects its security
interest in the stamp by taking possession of the stamp. In
September, Grant A grants security interest in the stamp to Bank B.
Bank B perfects its security interest in the stamp with a
registration on the PPS Register. In November, Bank A agrees to
give Grant A possession of the stamp for 48 hours to allow Grant A
to exhibit the stamp at a festival. Before giving Grant A
possession of the stamp, Bank A registers its security interest in
the stamp on the PPS Register. The security interest held by Bank
A would have priority over that held by Bank B, because the
priority time for Bank A's security interest would be July (when
Bank A initially perfected its security interest by taking
possession of the stamp).
Priority of security interests perfected by control
114. A security interest that is perfected by control would have priority
over a security interest perfected by any other means (clause 57(1)).
115. Only the following kinds of property could be perfected by control:
. an ADI account;
. an investment entitlement;
. an investment instrument;
. a negotiable instrument that is not evidenced by a certificate;
. 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; and
. satellites and other space objects.
116. A security interest would be perfected by control when the secured
party, or another person on behalf of the secured party, has control
of the collateral (clause 21(2)). However, controllable property
could be perfected otherwise than by control.
Example
Grant A borrows $10,000 from Bank A and grants Bank A a security
interest in its shares. Bank A perfects its security interest by
registering a financing statement on the PPS Register. Grant A
later borrows $15,000 from Bank B and grants Bank B a security
interest in the same shares. Bank B perfects its security interest
by taking control of the shares. Bank B's security interest would
have priority over Bank A's security interest because Bank B has
perfected its security interest through control while Bank A has
perfected its security interest through registration.
117. A security interest perfected by control would have priority over a
security interest that is not perfected by control even when the
secured party knows that the grant of the security interest was made
in breach of a pre-existing security interest. This makes it
unnecessary to consider whether a person with control had knowledge of
another security interest or the terms of the other security interest.
118. Secured parties should therefore protect their security interests by
perfecting their interests appropriately. As perfection by
registration alone would be insufficient to guarantee priority against
a competing security interest perfected by control, a secured party
with a security interest in controllable property, who is concerned
that the grantor might transfer the collateral to another person,
should consider taking control of the property.
119. Where all the competing security interests are perfected by control,
the first in time principle would apply and priority would be
determined by the order in which the secured parties took control of
the collateral (provided that perfection by control has been
continuous) (clause 57(2)).
120. This rule would be subject to an exception where an ADI perfects its
security interest in an ADI account held with the ADI (always by
control) (clause 25(1)). The security interest held by the ADI would
be subordinate to a security interest held by another secured party
who has control (clause 75). An ADI which is concerned about this
could choose to specify that only an account holder can direct the
disposition of funds.
121. Priority between perfected security interests not perfected by control
would be determined by their priority time. The security interest
with the earliest priority time would have the highest priority
(clause 55(4)).
122. Over a period of time, a secured party might perfect a security
interest by more than one method. For example, the security interest
might initially be perfected by possession and then perfected later by
registration. Provided that the security interest has been
continuously perfected, the priority time would be the earliest
priority time (clause 55(5)-(6).
Example
On 1 July, Grant A grants Finance A a security interest in a lathe.
Finance A takes possession of the lathe from 1 July until 30
August. On 1 August, Finance A registers against Grant A in
relation to the lathe with an end date of 31 October. On 1
October, Finance A again takes possession of the lathe until 31
December. At 31 December, Finance A's security interest in the
lathe will have been continuously perfected since 1 July, initially
by possession, then by registration and later by possession. The
priority time for the security interest will be 1 July.
123. The priority time for a security interest first perfected by control
would be the time when the collateral is first perfected by control.
A secured party who has control of the collateral and who wishes to
surrender control while retaining a perfected security interest,
should satisfy themselves beforehand that the security interest will
remain perfected despite the loss of control (clause 55(7)).
124. If a security interest has priority over a second security interest
and that second security interest has priority over a third security
interest, then the first security interest would have priority over
the third security interest (clause 59). It would not matter whether
the second security interest exists.
125. The priority of a constitutional security interest over a non-
constitutional security interest is relevant where a State does not
refer the power to enact the Bill to the Commonwealth. Some security
interests would be within the constitutional power of the Commonwealth
(clauses 243(2) and clauses 246-249) but others would not be. For
example, the Bill would operate in relation to a security interest
when the secured party is a constitutional corporation and the grantor
is an individual (clause 248(1)). However, the Bill would not operate
when both the secured party and the grantor are individuals and the
constitution does not apply to the collateral..
126. A security interest that is within the constitutional power of the
Commonwealth would have priority over a security interest that is not
within the constitutional power of the Commonwealth (clause 252).
Accordingly, a security interest granted by an individual over non-
constitutional property to a constitutional corporation would have
priority over a security interest in the same property granted to an
individual.
Example
State A is a State that has not referred the power to enact the
Bill to the Commonwealth. Grant A is an individual, and has
granted a security interest in his or her personal property to
Person A, another individual. The security agreement is entered
into in State A. Grant A later grants a security interest in the
same personal property to Bank A. The security interest held by
Bank A, as a security interest arising from the Commonwealth's
banking power, would have priority over the security interest held
by Person A.
127. Where a security interest is transferred to another party, the
transferred part of the security interest would have the same priority
after the transfer that it had immediately before the transfer (clause
60).
128. A secured party could subordinate their security interest to any other
interest (whether or not a security interest) in the same collateral
(clause 61(1)). This would sometimes be necessary because a prior
perfected security interest could limit further finance available to
the debtor.
129. A subordination agreement would be effective according to its terms.
Any third party who is intended to benefit from the subordination
agreement would be able to enforce the subordination agreement without
being a party to the agreement. (Clause 61(2)).
Example
On 1 July, Finance A registers a security agreement against Grant A
over its inventory in anticipation of future deliveries of
inventory to Grant A. On 1 August, Grant A attempts to obtain
further finance from Finance B but Finance B is aware of Finance
A's registered security interest and concerned that Finance A would
have priority in the event of Grant A's default. Finance B
therefore makes the provision of finance conditional on a
subordination agreement between Grant A and Finance A to ensure
that once their security agreement is signed, Finance B's security
interest would not be subordinate to that of Finance A.
130. A security interest would not be created by an agreement or
undertaking to subordinate the right of a person to the performance of
an obligation to the right of another person to the performance of an
obligation of the same debtor.
Advances
131. An advance is the payment of currency, the provision of credit or the
giving of value, and would include the liability of a debtor to pay
interest, credit costs and other charges or costs connected to the
advance or the enforcement of a security interest securing the advance
(clause 10, advance). A future advance would be an advance secured by
a security interest (if the advance is made after the security
agreement) and would include expenses in relation to the enforcement
of the security agreement, secured by the security interest (clause
10, future advance).
132. A security agreement could contain a provision securing a future
advance (clause 18(4)) and the Bill would confer the same priority on
all advances (including future advances) and obligations secured by
the security agreement (clause 58). Accordingly, a security agreement
can contain a provision which secures future advances.
133. Expenses, in relation to the enforcement of a security interest in
collateral, would include advances, costs and taxes for obtaining
possession of, protecting (including insuring), maintaining,
preserving or repairing the collateral (clause 10). A security
agreement would be taken to secure reasonable expenses in relation to
the enforcement of the security interest, unless the parties agree
otherwise (clause 18(5)).
Purchase money security interests
134. A security interest would be a purchase money security interest:
. to the extent that it attaches to collateral and secures all or
part of the purchase price;
. where the secured party provides the value required by the grantor
to acquire the collateral, to the extent that the collateral
secures the value;
. where a lessor or bailor acquires an interest under a PPS lease,
that is, a lease or bailment of tangible property for an effective
period of more than one year, or 90 days in the case of serial
numbered goods) (clause 13); or
. where a consignor acquires an interest under a commercial
consignment (clause 14(1)).
Example
Grant A leases a jetspa from Finance A for a term of more than one
year. Finance A has a purchase money security interest.
Example
Grant A is a wholesaler of car radios. Grant A purchases car
radios from Manufacturer A, financed by Bank B. Bank B has a
security interest in Grant A's all present and after acquired
property but does not have a purchase money security interest.
Grant A decides to take up Manufacturer A's offer to supply the car
radios on a deferred payment basis. Manufacturer A would have a
purchase money security interest in the car radios supplied after
this time.
135. A secured party who has a purchase money security interest would have
priority over a perfected security interest in the same collateral,
granted by the same grantor, provided the purchase money security
interest is perfected by a registration that states that the security
interest is a purchase money security interest.
136. When the collateral is inventory that is goods, the purchase money
security interest would have to be perfected by a registration before
the grantor obtains possession of the goods (clause 62(2)). A single
registration could confer purchase money priority on several later
supplies of goods. When goods are shipped to the grantor by a common
carrier, the grantor would not obtain possession of the goods until
the grantor acquires actual possession of the goods (clause 65). When
the collateral is inventory that is not goods, the security interest
would have to be perfected by a registration before the security
interest could attach to the inventory (clause 62(2)).
137. When the collateral is goods, but not inventory, the purchase money
security interest would have to be perfected by registration before
the end of 10 days after the grantor obtains possession of the goods.
When collateral is neither inventory nor goods, the purchase money
security interest would have to be perfected by registration before
the end of 10 days after the security interest attaches to the
collateral. (Clause 62(3)).
138. A purchase money security interest held by a seller, lessor or
consignor of the collateral would have priority over another purchase
money security interest in the same collateral held by a person who is
not the seller, lessor or consignor, provided the priority interest is
perfected within the period required to obtain priority over a
security interest that is not a purchase money security interest
(clause 64).
139. A PMSI would not include:
. an interest acquired under a sale and lease-back arrangement;
. an interest in collateral (as original collateral) that is a
monetary obligation, chattel paper, investment instrument,
investment entitlement or a negotiable instrument;
. a security interest in collateral that the grantor intends to use
predominantly for personal, domestic or household purposes (clause
14(2)).
140. If a security interest secures purchase money security obligations and
other obligations, it would be a purchase money security interest only
to the extent that it secures purchase money obligations and not to
the extent that it does not secure purchase security obligations
(clause 14(3)).
Example
Grant A borrows $100,000 from Dealer A to purchase a front-end
loader from Dealer A. Grant A is able to purchase the front-end
loader for $75,000 and Grant A uses the balance of the money
advanced ($25,000) to purchase a round-the-world cruise. While the
front-end loader would secure the entire $100,000 advanced, the
security interest would only be a purchase money security interest
priority to the extent that it secured $75,000. Dealer A would
have a security interest in the front-end loader securing the other
$25,000 (but this security interest would not have purchase money
security status).
141. If a security interest is granted in purchase money security
collateral and collateral that is not purchase money security
collateral, the security interest would be a purchase money security
interest only to the extent that it secures the purchase money
collateral (clause 14(4)).
Example
Grant A owes $5,000 to Bank A, but the loan is unsecured. Grant A
borrows a further $10,000 from Bank A to purchase a computer. All
of the $10,000 is used to purchase the computer. Bank A secures
both the $10,000 loan and the earlier $5,000 loan against the
computer. The security interest in the computer would be a
purchase money security interest only to the extent that it secures
the $10,000 advanced by Bank A for the purchase of the computer.
142. A purchase money security interest would continue to be a purchase
money security interest despite the secured obligation being renewed,
refinanced, consolidated or restructured (clause 14(5)).
Example
Bank A gives Grant A a $5,000 unsecured loan in addition to an
existing $10,000 purchase money security interest secured against
Grant A's wine collection. Grant A and Bank A agree to consolidate
the loans, to extend the period over which Bank A must be repaid
and to secure the loans against the wine collection and against
some antique prints owned by Grant A. The consolidated loan would
be a purchase money security interest, but only to the extent of
$10,000 of the $15,000 consolidated loan and only to the extent
that it is secured against the wine collection.
143. When an obligation secures both purchase money security interests and
other security interests, the parties could agree on a method of
apportioning payments. If the parties don't agree, the payments would
be apportioned as intended by the grantor alternatively in the
following order:
. to unsecured obligations;
. to secured obligations;
. to obligations secured by purchase money security interests.
(Clause 14(6)).
Non-purchase money security interests in accounts
144. The priority held by an inventory financier in a purchase money
security interest could extend to proceeds arising from a dealing by
the grantor in the collateral (clause 32(5)) but when the proceeds are
in the form of an account, other than an ADI account, the grantor
could assign the account to another person for new value.
145. The accounts financier would have priority provided it registers its
security interest against the grantor, before the earlier of:
. the perfection of the purchase money security interest; or
. the registration time of the purchase money security interest
(Clause 64(1)).
146. Alternatively, the accounts financier would have priority, if it gives
notice to each secured party holding a registered purchase money
security interest in the inventory at least five business days before
the earlier of the day:
. it registers its security interest against the grantor; or
. the priority interest attaches to the account. (Clause 64(1)).
147. The requirement that five business days notice be given to the
inventory financier would give the inventory financier time to protect
its security interest by altering the terms of trade for future
inventory finance that would become subordinate to the priority
interest.
148. If the purchase money security interest is subordinate to a priority
interest, the purchase money security interest would continue in
either the proceeds of the inventory or the new value received by the
grantor. This security interest in the new value would be taken to be
perfected by the registration that perfected the purchase money
security interest in the proceeds. (Clause 64(3)).
Example
Manufacturer A supplies inventory to Grant A on a purchase money
security interest basis. Manufacturer A has registered against
Grant A in relation to the inventory. Grant A would like to begin
transferring the proceeds of its inventory, in the form of
accounts, to Discount A for new value. Discount A gives 5 business
days notice to Manufacturer A of its intention to begin buying
accounts from Grant A. Discount A registers its security interest
in the transferred accounts. At the end of the 5 business days,
Discount A begins buying the accounts from Grant A. Discount A has
priority over Manufacturer A in relation to the accounts, but
Manufacturer A would have a purchase money priority over the new
value Grant A has received on the transfer of the accounts to
Discount A.
149. More than one purchase money security interest could attach to the
same collateral, for example where a grantor acquires collateral that
is financed partly by the seller of the collateral and partly by
another financier.
150. A purchase money security interest held by a seller, lessor or
consignor would have priority over any other purchase money security
interest granted by the same grantor, if the purchase money security
interest is perfected:
. for collateral that is inventory and tangible property - at the
time the grantor obtains possession;
. for collateral that is inventory and intangible property - at the
time the priority interest attaches to the collateral; and
. in any other case, before the end of 10 business days after the
grantor obtains possession of the collateral (clause 63).
Example
Grant A acquires a lathe from Manufacturer A on a retention of
title basis, under which Grant A is obliged to pay 25% on
possession and the balance in regular instalments over six months.
Manufacturer A has a purchase money security interest in the lathe
that secures the 75% balance owing on the lathe. Grant A finances
the initial 25% of the purchase price of the lathe through a loan
from Bank B secured against the lathe also on a purchase money
security interest basis. Manufacturer A's purchase money security
interest will have priority over Bank B's purchase money security
interest.
151. When neither of the purchase money security interests is held by a
seller, lessor or consignor, priority would be determined in
accordance with the default priority rules, that is, on the basis of
the earliest priority time or earliest attachment if neither is
perfected.
Example
Bank A grants Grant A a loan to purchase equipment for its
business. Bank A takes a security interest in all Grant A's
present and after acquired property, including proceeds, to secure
the loan. Grant A then acquires a boat from Manufacturer A, on a
retention of title basis, and Manufacturer A registers its purchase
money security interest in the boat. Grant A finances the initial
down payment on the boat through a loan from Bank B, also secured
against the boat, and any proceeds, on a purchase money security
interest basis.
Grant A sells the boat and acquires proceeds in the form of an
account. Grant A sells the account to Discount A and keeps the new
value provided by Discount A. Discount A gives notice to
Manufacturer A one day before it registers its security interest in
the transferred account.
Discount A has priority over Manufacturer A in the proceeds that
were transferred to Grant A. As the seller of the boat,
Manufacturer A would have priority over Bank B's purchase money
security interest in the proceeds but Bank B would have priority
over Bank A which does not have a purchase money security interest
in the proceeds.
Priority of security interests in transferred collateral
152. A grantor could transfer collateral to another person where the
transferee does not take the property free of the security interest
and the transferee, in turn, grants a security interest in the
collateral to another secured party. In these circumstances, it would
become necessary to determine which security interest has priority
(clause 66).
153. The law would need to balance the competing interests of two innocent
parties:
. the secured creditor who provided finance to the transferor and who
did not consent to and is unaware of the transfer (the transferor's
secured party); and
. the secured creditor who provided finance to the transferee and who
was not aware of the earlier security interest (the transferee's
secured party).
154. Where the transferor-granted security interest or the transferee-
granted security interest is a purchase money security interest,
neither interest would have purchase money priority over the other,
because purchase money priority applies only when the competing
security interests have been granted by the same grantor (clause
62(1)).
155. The transferor-granted interest would have priority where it was
perfected immediately prior to transfer and was continuously perfected
since transfer (clause 67).
Example
Bank A has a registered security interest in Grant A's worm farm,
securing $100 owed by Grant A to Bank A. Grant A transfers the
worm farm to Grant B, in circumstances where Grant B takes the worm
farm subject to the security interest. Bank A has the benefit of
temporary perfection (clause 34). Within 24 months of the
transfer, Grant B grants Bank B a security interest in the worm
farm, securing $150 owed by Grant B to Bank B. Grant A is not
aware of the transfer. Bank A's security interest would have
priority over Bank B's security interest (clause 67).
Example
Bank A has a registered security interest in Grant A's worm farm,
securing $100 owed by Grant A to Bank A. Grant A transfers the
worm farm to Grant B, in circumstances where Grant B takes the worm
farm subject to the security interest. Bank A has the benefit of
temporary perfection (clause 34). Bank A becomes aware of the
transfer, but does not register against Grant B within 5 business
days. The temporary perfection ends (clause 34(1)(c)(ii)). Bank A
registers against Grant B. There are no other registrations
against Grant B. Grant B later grants a security interest in the
worm farm to Bank B (who later still perfects its security interest
by registration). Bank A would have priority on an ordinary first
in time basis because its second registration was made before Bank
B's registration.
156. On ordinary first in time priority principles, once the transferor-
granted interest becomes unperfected, a perfected transferee-granted
interest would have priority over a transferor-granted interest.
157. However, the Bill would allow the transferor-granted interest to have
priority over the transferee-granted interest, subject to the
transferor's secured party resuming perfection of the security
interest and giving notice to the transferee's secured party. The
transferee-granted interest would have priority to the extent of any
advances made or obligations secured while the transferor-granted
interest was not perfected (clause 68). The transferee's secured
party would have priority only if it acquired the security interest
without actual or constructive notice that the acquisition constitutes
a breach of the transferor's security interest (clause 68(2)(c)).
Example
Bank A has a registered security interest in Grant A's worm farm,
securing $100 owed by Grant A to Bank A. Grant A transfers the
lathe to Grant B, in circumstances where Grant B takes the worm
farm subject to the security interest. Bank A has the benefit of
temporary perfection (clause 34). Bank A becomes aware of the
transfer, but does not register against Grant B within 5 business
days. The temporary perfection ends (clause 34(1)(c)(ii)). Grant
B is negotiating a loan from Bank B. Bank B registers against
Grant B. Bank A becomes aware of the transfer to Grant B and
registers against Grant B but before Bank B makes an advance to
Grant B or comes under an obligation to Grant B that is secured
against the worm farm. Bank A gives a notice to Bank B. Bank A's
security interest has priority over Bank B's security interest
(clause 68(1)).
158. The transferee-granted interest has priority where the transferor-
granted security interest:
. is not registered with a serial number;
. was perfected by registration before the transfer, became
unperfected and was later re-perfected;
. notice in the approved form was given to other secured parties;
. the transferee-granted security interest was perfected immediately
before the transferor-granted interest was re-perfected;
. the transferee acquired their interest without knowledge that it
was a breach of a prior security agreement; and
. the transferee-granted interest secured performance of an advance
made before the transferor-granted interest is re-perfected (this
would apply despite the rule that all advances have the same
priority)(clause 58). (Clause 68(2)).
Example
Bank A has a registered security interest in Grant A's worm farm.
Grant A transfers the worm farm, in the ordinary course of his
business, to Grant B who acquires the worm farm free of Bank A's
security interest. Grant B grants a security interest in the worm
farm to Bank B. Bank B immediately perfects its interest in the
worm farm without any knowledge that this is in breach of Bank A's
prior security agreement and makes a number of advances to Grant B
under their security agreement. Bank A later becomes aware of the
transfer and re-registers its security interest and provides notice
to Bank B in the approved form. Bank A would have priority over
Bank B's security interest in the worm farm (clause 68(1)).
However, Bank B would have priority over the Bank A's security
interest to the extent of the advances made or obligations incurred
before Bank A re-perfected its security interest and gave the
notice to Bank B (clause 68(2)).
Priority of creditors and purchasers of negotiable instruments, chattel
paper and negotiable documents of title
159. The interest of a creditor who is paid by a debtor would have priority
over any security interest in:
. the funds paid;
. the intangible that was the source of the payment (for example, a
bank account); or
. a negotiable instrument used to effect the payment (clause 69(1)).
160. However, the creditor would not have priority if they had actual
knowledge that the payment was a breach of the security agreement that
provided for the security interest (clause 69(2)).
161. A person who acquires an interest in a negotiable instrument, in a
consensual transaction, would have priority over security interests in
the negotiable instrument provided:
. the person provided value and took possession or control of the
instrument;
. if the acquisition was in the ordinary course of the person's
business of acquiring instruments of that kind - the person
acquired the interest without actual or constructive knowledge that
the transaction involved a breach of the security interest; and
. if the acquisition was not in the ordinary course of the person's
business of acquiring instruments of that kind - the person lacks
actual or constructive knowledge of the security interest (clause
70).
Example
Finance A perfects its security interest in Dealer A's cars by
registering a financing statement. Dealer A sells a car to a
person who pays for the car with a cheque. Dealer A deposits the
cheque with Bank A. Bank A is unaware of Finance A's security
interest in the cheques (as proceeds of the car). Bank A's
interest in the cheque takes priority Finance A's security interest
in the cheque.
162. The interest of a person who acquires chattel paper for new value, in
a consensual transaction, in the ordinary course of their business of
acquiring chattel paper of that kind would have priority over:
. a perfected security interest if they lack actual or constructive
knowledge of the security interest; and
. a security interest that has attached to proceeds of inventory as
original collateral (clause 71(2)).
Example
Dealer A leases paintings in the course of a business. Dealer A
leases a painting to Person A. The lease agreement is chattel
paper. The lease payments are proceeds of Dealer A's inventory.
Dealer A assigns the lease payments to Finance A. The assignment
is deemed to be a security interest and attaches to the payments
(which are proceeds of inventory) as original collateral. Dealer A
also sells the chattel paper to Finance B. Both Finance B and
Finance A claim the lease payments made to Dealer A. Finance B's
interest in the chattel paper would have priority over Finance A's
security interest in the lease payments.
163. The interest of a holder of a negotiable document of title would have
priority over a perfected security interest in the document if the
holder gives value for the document and:
. where the holder acquires the document in the ordinary course of
their business of dealing in documents of that kind - it is
acquired without actual or constructive knowledge that the
acquisition was a breach of the security interest; or
. where the holder does not acquire the document in the ordinary
course of their business of dealing in documents of that kind - it
is acquired without actual or constructive knowledge of the
security interest (clause 72).
Priority of other interests
Priority between security interests and declared statutory interests
164. An interest in personal property would have priority over a security
interest where:
. it arises under a law of the Commonwealth, a State or Territory
(unless the collateral owner agrees to the interest) or the general
law; and
. it arises in relation to providing goods or services in the
ordinary course of business;
. no other law provides for priority between the priority interest
and the security interest; and
. the holder of the priority interest has no knowledge that the
transaction is a breach of the security agreement (clause 73(1)).
165. Other interests in personal property would have priority over a
security interest if, and only if, the Commonwealth, State or
Territory conferred priority on the other interests over security
interests (clause 73(2)).
166. The priority between an interest arising under a law of the
Commonwealth, State or Territory and a security interest would be
determined according to that law, if:
. that law declares these provisions to be applicable to the
statutory interest; and
. the statutory interest arises after the declaration come into
effect (clause 73(2)).
167. These rules do not apply to interests arising before the registration
commencement time. Any other interest that currently has priority
over a security interest would continue to have priority over a
security interest (clause 312).
Priority of execution creditors
168. 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 (clause 74).
Returned goods
169. A perfected security interest that re-attaches to returned property
(clause 37(1)) would have priority over a goods security interest that
is granted to the transferee of an account under clause 38(1).
(Clause 76(1)) .
170. A security interest in goods granted to the transferee of chattel
paper (clause 38(1)) has priority over:
. a perfected security interest granted to the transferee of an
account (clause 38(2));
. a perfected security interest that re-attaches to returned goods or
after-acquired property (if the transferee takes possession of the
chattel paper in the ordinary course of business and for new
value).
Example
Finance A grants a loan to Dealer A and secures a security interest
in all Dealer A's motor vehicles. Lessor A leases a motor vehicle
from Dealer A. The lease creates chattel paper which Dealer A
transfers to Finance B. Lessor A makes the required payments under
the lease to Finance B. Lessor A then terminates the lease and
returns the motor vehicle to Dealer A. Finance A's pre existing
security interest re-attaches to the motor vehicle but this
security interest would be subordinate to Finance B's security
interest as the transferee of the chattel paper.
171. A security interest in goods that is granted by a person who acquires
an interest in the property would have priority over a security
interest that re-attaches or is granted when the goods are returned,
if:
. the attachment occurred while the person possesses the property;
and
. immediately before the possession time, the priority interest was
perfected (clause 76(3)).
Priority where no foreign register
172. Where a foreign jurisdiction does not provide for the registration of
security interests, a security interest in an account or financial
property (chattel paper; currency; documents of title; investment
instruments and negotiable instruments) would have priority over
another interest, in proceedings in an Australian court:
173. in respect of accounts - if the priority interest was perfected prior
to the attachment of the other interest (clause 77(2));
174. in respect of financial property - if the priority interest was
perfected by registration prior to the attachment of the other
interest and the secured party lacks possession or control of the
property (clause 77(3)).
Transfer and assignment of interests in collateral
Transfer of collateral
175. A provision in a security agreement or other agreement prohibiting the
transfer of the collateral by the grantor would not affect any right
the grantor has to transfer the collateral either by agreement with
the transferee or by operation of law (clause 79(1)).
176. However, the fact that the transfer of the collateral is effective
would not affect the right of a secured party to treat the transfer as
a default under the security agreement (clause 79(2)).
Rights on transfer of account or chattel paper
177. In order to ensure that an account debtor is not in a worse position
following the transfer of an account or chattel paper, the rights of a
transferee of an account or chattel paper (including a secured party
or receiver) would, subject to the account debtor not having agreed
not to assert any contractual defences (clause 80(2)), be subject to:
. the contractual terms between the account debtor and the
transferor, and any equity, defence or claim arising under their
contract;
. any other equity, defence or claim that the account debtor may have
against the transferor, including set-off, that arises before
transfer, (clause 80(1)).
Modification or substitution of contract
178. An account debtor and the transferor of an account may agree to modify
the contract giving rise to the account. The modification would be
effective against the transferee provided that:
. the account debtor and the transferor acted honestly in modifying
the contract;
. the modification is made in a commercially reasonable way; and
. the modification does not have a materially adverse effect on the
transferee's rights or the transferor's ability to perform under
the contract (clause 80(6)).
179. This rule would apply only to the extent that a transferred right to
payment has not been fully earned by performance (or is outstanding)
(clause 80(4)).
180. If a transferor initially agrees with the transferee not to modify or
substitute a contract but then later agrees with the account debtor to
modify or substitute the contract, contrary to the agreement with the
transferee, the transferor would be acting dishonestly.
181. If collateral is intangible or chattel paper, the account debtor would
be able to make payments under the contract to the transferor until
the receipt of a notice including the following information:
. the contract under which payment has become due;
. the amount payable that has been transferred; and
. that payment needs to be made to the transferee.
182. An account debtor would be unaffected by the assignment of a debt
until notice of the assignment is given directing the account debtor
to pay the transferee. After receiving notice, other than a notice
from the transferor, if the account debtor requests proof from the
transferee and the transferee fails to provide proof within 5 days of
the transfer, payment to the transferee discharges the obligation
(clause 80(7)).
Example
Buyer A has an agreement with Dealer A to purchase equipment and
pay on an instalment basis. Dealer A agrees that it will not
assign any of its rights under the sale agreement. Nevertheless,
Dealer A grants Finance A a security interest in the accounts. The
anti-assignment agreement would be ineffective. However, if
Finance A notifies Buyer A to make all future payments directly to
Finance A, Buyer A would be obliged to do so in order to discharge
its obligations.
Rights on transfer of account or chattel paper
183. A term in a contract which prohibits the transfer of:
. an account arising from the proceeds of inventory;
. an account which arises from granting rights (other than under
construction contracts) or providing services (other than financial
services) in the ordinary course of a business of that kind; or
. an account that is proceeds of an account arising from providing
rights or services in the ordinary course of business;
would be binding on the transferor only to the extent of making the
transferor liable in damages for breach of contract and is
unenforceable against third parties (clause 81(2)).
Example
Buyer A has an agreement with Dealer A to purchase equipment and
pay on an instalment basis. Dealer A agrees that it will not
assign any of its rights under the sale agreement. Nevertheless
Dealer A grants to Finance A a security interest in its accounts.
The anti-assignment agreement would be ineffective.
184. This provision acknowledges that it is impractical for transferees of
accounts and chattel paper to examine each contract for prohibitions
on assignment.
Chapter 3 - Specific Rules For Certain Security Interests
Agricultural interests
1. The Bill deals with the relationship between a security interest in
crops and an interest in the land on which the crops are growing
(clause 84).
2. 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.
Relationship between security interest in crops and interest in land
3. The Bill would protect the interests of a lessor or mortgagee of land
and they would not be adversely affected if:
. a security interest is granted in crops on the land after the
creation of the lessor's or mortgagee's interest in the land; and
. the lessor or mortgagee has not consented to the creation of the
security interest in the crops (clause 84(1)).
Example
Farmer B borrows money from Bank A and provides Bank A with a
mortgage over his land. Farmer B then borrows money from Bank B
and grants a security interest to Bank B in his crops. Bank A does
not give written consent to the creation of the security interest
in the crops. Bank A's mortgage is not prejudicially affected by
Bank B's security interest in the crops.
4. A perfected security interest in crops would be protected if the land is
subsequently sold, leased or encumbered (clause 84(2)). This provision
reflects similar protection in State and Territory legislation.
Example
Farmer J borrows money from Bank A and grants Bank A a perfected
security interest in her crops. Farmer J then grants Bank B a
mortgage over the land on which the crops are growing. Bank A's
security interest in the crops is not prejudicially affected by
Bank B's mortgage.
5. Perfected security interests in crops which secure loans or other value
used to produce the crops (a 'crop PMSI') would have priority over other
security interests in the same crops (clause 85)
6. A security interest in crops would be a crop PMSI where:
. the security interest is granted for value;
. the security interest is granted to enable the crops to be produced
(for example, seed, fertiliser or chemicals used in crop
production); and
. the security agreement providing for the security interest is made
six months before the crops are planted or while they are growing
(to ensure that the growing of the crops is contemplated at the
time the security interest is granted) (clause 85).
Example
Farmer B borrows money from Bank A and provides Bank A a perfected
security interest in his crops. The money is used for general
farming purposes not specifically related to producing the crops.
Farmer B then purchases fertiliser from AgricSupplies on terms that
grant AgricSupplies a security interest in the fertiliser and the
crops securing the unpaid purchase price of the fertiliser. The
crops PMSI of AgricSupplies would have priority over Bank A's
security interest in the crops.
7. 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).
Accessions
8. Goods are sometimes made up of separate components that may require
replacement as they wear out or become obsolete (for example, a sail on a
yacht) and the value or utility of these goods may be improved with
additional components (for example, a roof rack or trailer hitch to a
car).
9. These substituted or added goods are accessions, which are defined as
goods that are installed in, or affixed to, other goods, unless both the
accessions and the other goods are required or permitted by the
regulations to be described by unique serial numbers (clause 10,
accession). For example, an engine installed in a motor vehicle is an
accession because the engine is physically attached to the motor vehicle
and only the car is described by a unique serial number. This exception
for goods permitted or required to be described by a serial number would
avoid the application of the accessions provisions where it would be
inappropriate to do so and in particular, to the attachment of aircraft
engines to airframes.
10. Accessions raise particular priority issues and therefore the Bill
would provide special priority issues for accessions. They would also
raise particular enforcement issues (as they become attached to other
property). The rules on accessions are closely modelled on those in the
New Zealand and Saskatchewan personal property securities legislation.
Priority rules
11. A security interest in a good would continue in the good after it
becomes an accession, despite being affixed or installed to another good
(clause 88).
12. A security interest in an accession would have priority over an
interest in the whole unless the interest in the whole falls within an
exception (clause 89). For example, a security interest in an engine
that is later affixed to a car would have priority over a security
interest attached to the car. If the car (including the engine) were
dealt with in a way that extinguished the security interest, then the
security interest in the engine would be extinguished, for example, if
the car were sold by a motor vehicle dealer.
13. These provisions would protect secured parties with security interests
in goods that have the potential to become an accession (because when
the security agreement is made the secured party would have an
expectation that the good would later be affixed or installed to
another good and that this would not affect their security interest).
14. Exceptions to the default priority rule would apply when:
. a person acquires an interest in the whole for value after the
accession is affixed, but before the security interest in the
accession is perfected;
. a person who buys the whole for value before the security interest
in the accession is perfected;
. a person with a perfected security interest in the whole who makes
an advance after the accession is affixed and before the security
interest in the accession is perfected, but only to the extent of
the advance; or
. a person has a perfected security interest in the whole obtained
after the goods become an accession, and acquires the right to
retain the goods under the security agreement before the security
interest in the accession became perfected. (Clause 90).
15. All of these exceptions would apply only when the secured party to the
accession has not perfected its security interest in the accession after
it became affixed and it is therefore necessary to balance the interests
of the secured party to the accession (who has not perfected the security
interest) and another person who acquired rights in the whole (including
the accession) without the benefit of notice that would have been
provided by perfecting the security interest.
Example
Grant A borrows money from Finance B to buy a new motor for its
pump, which is placed into the pump. Before Finance B registers
its security interest in the motor on the PPS Register, Grant A
offers the pump as security for a loan from Bank A, which advances
the money and perfects its security interest in the pump through
registration. Bank A has priority over Finance B to the motor
because Bank A acquired for value an interest in the whole (the
pump) before the security interest in the accession (the motor) was
perfected. Bank A's search of the register would not have
disclosed Finance B's security interest, and Bank A was entitled to
assume that its perfected security interest would have the highest
priority of any security interests attached to the pump.
16. Exceptions to the default priority rules would also apply where a
security interest in the accession attaches after the goods becomes an
accession. (Clause 91).
17. A security interest in the accession would be subordinate to a security
interest attached to the whole before the accession was affixed, unless
the person with the security interest in the whole:
. consents to the security interest in the accession;
. disclaims any interest in the accession;
. agrees that a person may remove the accession; or
. has no right to prevent the grantor from removing the accession.
Example
Grant A owns a large telescope at its observatory. Bank A has a
registered security interest in Grant A's telescope. Grant A
orders a replacement mirror from Supplier S. Supplier S supplies
and installs the mirror in the telescope before the terms of
payment are agreed. Grant A and Supplier S later agree that
payment for the mirror is to be made within 30 days of the
installation and Supplier S a security interest in the mirror.
Bank A does not consent to the terms of payment between Grant A and
Supplier S. Grant A defaults on its obligations to Bank A. Bank A
seeks to enforce its interest in the telescope (including the
recently installed mirror). Bank A's security interest would have
priority over Supplier S' interest in the mirror.
18. A security interest in an accession that attaches after the goods
become an accession would also be subordinate to the interest of 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.
Enforcement of security interests in accessions
19. A secured party seizing an accession would have a duty to minimise any
damage caused to the other good and any inconvenience to the person in
possession of the other goods (clause 123). Only damage and
inconvenience that is necessarily incidental to the removal of the
accession would be permitted and the degree of damage and inconvenience
that is necessarily incidental to the removal would be a question of fact
in each case (clause 92).
20. Any party other than the grantor with an interest in the goods which
are damaged would have a right to be reimbursed for the damage (but not
inconvenience) caused by the removal of the accession, even if the damage
is necessarily incidental to the removal of the accession (clause 93(1)).
The value of the damage would not include the diminished value of the
good resulting from the removal of the accession (otherwise the
reimbursed party would be unjustly enriched) (clause 93(2)). A person
entitled to be reimbursed may refuse to give permission for removal until
the secured party has given adequate security for the removal (clause
94).
21. The secured party who is removing the accession would have to notify
the grantor and any parties with a higher priority security interest in
the accession that they intend to remove the accession (clause 95(1).
Notice would give the grantor and any parties with a higher priority
security interest in the accession an opportunity to approach the Court
to seek a postponement of the removal (clause 97).
22. A person with an interest in the whole would be entitled to retain the
accession if the obligation secured by the security interest in the
accession is performed or the removing party is paid the market value of
the accession (clause 96). The removing party would be able to obtain a
Court order determining the amount payable for the retention of the
accession (clause 97).
Processed or commingled goods
23. Special provisions would apply to goods which are manufactured,
processed, assembled or comingled so that they become part of a product
of mass and their separate identity is lost.
24. A security interest in goods would continue in a product or mass even
though the identity of the good is lost in the manufacturing, processing,
assembly or commingling process (clause 99(1)).
25. The identity of the good would be lost if it is not commercially
practical to restore the good to its original state. This would be a
question of fact to be determined by the commercial and practical facts
of each case. (For example, grain that becomes commingled with other
grain in a silo would normally lose its identity in the mass of grain and
a piece of wood that is manufactured into a fruit bowl would lose its
identity in the fruit bowl) (clause 99(2)).
26. Perfection of a security interest in goods that become part of a
product or mass is treated as perfection of a security interest in the
product or mass (clause 100). The Bill would therefore provide
protection for a secured party who perfects their security interest in a
good which is then subsequently transformed into another good.
27. Any priority continuing in the commingled goods would be limited to the
value of the goods on the day on which they became part of the combined
product or mass (this would prevent the unjust enrichment of a secured
party) (clause 101).
Example
Grant A is a furniture-maker. Finance A has a perfected security
interest of $1 000 in glue owned by Grant A. Finance B has a
perfected security interest of $10 000 in timber owned by Grant A.
Grant A uses the glue and timber to make a table. The value of the
glue that Grant A uses to make the table on the day that Grant A
makes the table is $50. The value of the timber that Grant A uses
to make the table on the day that Grant A makes the table is $200.
Finance A and Finance B are the only persons with security
interests in the table. Because the market for tables collapses,
the table is worth $100. Finance A and Finance B have equal
priority in the table. On enforcement of their security interests,
Finance A is entitled to recover $20 (or 50/250th of $250). Finance
B is entitled to recover $80 (or 200/250th of $250).
28. The priority between security interests continuing in commingled goods
would be determined according to three rules:
. a continuing perfected security interest would have priority over a
continuing unperfected security interest (clause 102(1));
. continuing perfected security interests would have equal priority,
but only to the extent that the amount secured by the interests
would be proportionate to the amount secured by the sum of all
perfected interests(clause 102(2)); and
. continuing unperfected security interests would have equal priority
but only to the extent that the amount secured by the interest
would be proportionate to the amount secured by the sum of all
perfected interests (clause 102(3)).
29. The priority of security interests continuing in the product or mass
would be limited to the value of the goods on the day on which they
become part of the product or mass (clause 102(4)). But a perfected
PMSI in goods that continues in the product or mass has priority over
a non-PMSI security interest in the product or mass (clause103).
Example
Grant A is a furniture-maker. Finance A has a registered security
interest of $1 000 in glue owned by Grant A. The value of the glue
that Grant A uses to make a table on the day that Grant A makes the
table is $50. The table is valued at $1 000, being for the timber,
glue, labour and skill of the furniture maker. On enforcement of
its security interest, Finance A could recover no more than $50.
Intellectual Property
Implied references to intellectual property
30. If a security interest in goods were perfected by registration, and the
exercise of the secured party's rights would necessarily involve the
exercise of the intellectual property rights, including those under
licence, and the security interest had attached to the intellectual
property, then the description of the goods in the security agreement
would be taken to include a description of those intellectual property
rights. This would be subject to the parties indicating a contrary
intention in their agreement (clause 105).
Example
Grant A owns a factory that produces car parts using robots whose
only function is to manufacture those particular car parts. The
process used to manufacture the car parts was patented by Grant A.
Grant A obtains a loan from Bank A and received value for a
security interest. The security agreement refers to 'the robots'.
Bank A registers the security interest.
Grant A defaults under the security agreement. Bank A enforces the
security agreement. The security agreement only refers to a
security interest in robots, but the court determines that the
security interest extends to the patent to the extent required to
permit the robots to operate. The exercise of Bank A's rights to
the robots under the security agreement necessarily involves the
use of the patent rights exploited in the robots. Bank A's
security interest will therefore be enforceable against both the
robots and the patent.
Security interests in intellectual property licences
31. Where intellectual property is transferred and the licensee or sub-
licensee continues to hold the licence or sub-licence after transfer, a
security interest in the licence or sub-licence would continue in the
licence or sub-licence and bind every successor-in-title to the licensor
to the same extent as the security agreement was binding on the licensor
(clause 106).
Example
Licensor A is the owner of copyright, and has licensed Grant A to
exercise the copyright. Grant A has granted a security interest in
the licensed rights to Bank A. Licensor A transfers the copyright
to Licensor B. Licensor B will be bound by the security interest
granted by Grant A to Bank A to the same extent that Licensor A was
bound by the security interest.
Chapter 4 - Enforcement of Security Interests
General rules
1. The Bill would not codify the rights, duties and obligations of the
parties to a security agreement as the parties should be able to
negotiate their own contractual terms, subject to the provisions of the
Consumer Credit Code (the Code), to the extent that it is able to operate
concurrently (clause 254(1)).
2. Any secured party would, regardless of its priority ranking, be able to
commence enforcement action under the Bill. This would enable secured
parties to negotiate between themselves and reach agreement about
enforcement. Higher ranked secured parties would, however, be able to
protect their interests by obtaining possession of collateral from a
lower ranked enforcing party.
3. Enforcement under the Bill would not require secured parties to obtain
judgment against a debtor before being entitled to exercise rights
against the secured assets. Likewise, the enforcement provisions would
not prevent persons with an interest in the secured property, other than
a security interest, from enforcing their interest, through court
proceedings.
Exclusions
4. The enforcement provisions would only apply to secured goods within
Australia. However, it is important to note that the enforcement
provisions would not apply to all secured personal property.
5. Specifically, the enforcement provisions would not apply where:
. the transaction is deemed to be a security interest. A transaction
that does not secure the payment or performance of an obligation
does not create a security interest and therefore should not be
subject to the security interest enforcement remedies; or
. a party has perfected its security interest in an investment
instrument or investment entitlement by taking possession or
control. When the secured party has perfected their security
interest in an investment instrument or investment entitlement by
possession or control they would be able to sell, transfer, use or
otherwise deal with the collateral in the manner and to the extent
provided in the security agreement. This would allow a secured
party to trade in the market without having to comply with the
procedures and time limits of the Bill (clause 109(3)).
Exercise of rights
6. The enforcement provisions would not diminish the rights and remedies
available to parties, whether those remedies are provided for by the
security agreement, any Commonwealth, State and/or Territory law and/or
any rule of law or equity (clause 110). 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
(clause 114).
7. However, enforcement action under the Bill would require all parties to
exercise their rights, duties and obligations arising under the
enforcement provisions honestly and in a commercially reasonable manner
(clause 111). The duty would apply in conjunction with the specific
duties imposed in the enforcement provisions, and under the general law
and other legislation.
8. In exercising rights, a secured party is generally only able to deal
with the personal property to the same extent that the grantor would be
able to deal with the property. However, a secured party would not be so
limited if the secured party had title to the collateral prior to
enforcing (for example, a lease arrangement, or where the grantor is
contractually prohibited from transferring the collateral to a contract)
(clause 112).
9. If a secured party has obtained judgment or initiated execution
proceedings against a grantor these would continue in the collateral and
would not prevent the secured party from taking enforcement action under
the Bill (clause 113).
Collateral used for consumer purposes
10. The Bill distinguishes between transactions securing inventory and
equipment and those securing consumer goods, particularly in relation to
the extent to which parties may contract out of the enforcement clauses.
11. In describing consumer transactions, the enforcement provisions refer
to 'goods used predominantly for personal, domestic or household
purposes' rather than 'consumer property', used elsewhere in the Bill and
defined as property used exclusively for a non-ABN activity (clause 10).
12. Consumer property is defined in the Bill as property used predominantly
for personal, domestic or household purposes or intended to be used
mostly for those purposes and is not acquired as an investment. The use
of the wider definition is consistent with the Code and would ensure that
the consumer protections in the Code and the Bill would apply in broadly
the same set of circumstances. Certain remedies would not be available
where the collateral is used predominantly for personal, domestic or
household purposes. The remedies that fall into this category are:
. remedies available under applied provisions of the State and
Territory land law (clause 117-118);
. the collection and application of liquid collateral (clause 120);
. the disposal of collateral by lease or licence (clause 128(2));
. the disposal by sale where the collateral is acquired by the
enforcing secured party (clause 129); and
. the retention of collateral by the enforcing secured party
(clause 134).
Contracting out
13. The parties would have freedom of contract over their respective rights
and responsibilities in enforcement.
14. Parties would also be able to contract out of specific enforcement
provisions. The rights of parties to contract out would not impact on
the rights and remedies affecting third parties who are not parties to
the contract.
15. The extent to which parties would be able to contract out would depend
on whether the collateral secured is used predominantly for personal use;
and if so, parties would only be able to contract out of the secured
party's right to apparent possession (where property cannot be seized or
storage facilities are unavailable) (clause 115(4)).
16. This would ensure that consumers have the full protection of the
enforcement provisions and, in particular, the notice provisions. In any
event, contracting out of the provisions in respect of personal, domestic
and household goods would be of limited use as parties would still have
to meet the requirements in the Code.
Example
Grant A obtains a loan from Bank B to finance the purchase of
business assets secured against her car. Grant A uses the car 90%
of the time for personal use. For 10% of the time Grant A uses the
car for business purposes. Grant A defaults on the loan and Bank B
initiates enforcement action. As a result of Grant A's use of the
car predominantly for personal, household or domestic purposes,
Bank B is unable to vary or contract out of most of the enforcement
provisions, regardless of the fact that the loan was obtained to
meet business needs.
17. Where collateral is not used predominantly for personal, domestic or
household purposes, parties would be able to contract out of most of the
enforcement provisions (clause 115).
Relationship with other laws
18. The Bill would not apply to property of a business that is subject to a
receiver or a controller appointed under Part 5.2 of the Corporations Act
2001 (clause 116). These provisions provide comprehensive rules for
receivers and other controllers when exercising functions in relation to
property.
19. Security agreements in relation to commercial transactions often use
both personal property and land to secure the same obligation.
Currently, a secured party must initiate separate enforcement proceedings
against the land and the personal property to meet any outstanding debt
secured by both. This is costly and can lead to prolonged enforcement
proceedings.
20. In order to reduce costs and to ensure expeditious resolution of
enforcement, the Bill would allow a secured party who has a security
interest securing the same obligation in relation to both kinds of
collateral to apply the land law to the personal property as if the
personal property were land (clause 117-118). This is done by reading in
the provisions of the relevant land law as if it were a provision of the
Bill.
21. The incorporation of the land laws would not oblige a secured party
having an interest in both land and personal property to initiate
enforcement action under the applied land laws. A secured party could
take separate proceedings against the land under the land law and against
the personal property in accordance with their other rights under the
Bill, general law and the security agreement (clause 118(2)).
22. A secured party could make a decision to proceed as if the personal
property were land or to proceed under the Bill; but could only make a
decision where they have the highest priority or have received written
agreement from all the other secured parties (clause 117(1)).
23. Where a secured party decides to proceed under land law, the land law
of the State or Territory in which the land is situated would apply. A
secured party who elected to proceed under the land provisions would not
have to comply with the enforcement provisions of the Bill other than the
distribution rules (clause 140). The rights of the other secured parties
would not be affected by the proceedings under land law. They would have
standing in any enforcement proceedings and would be entitled to apply to
Court for a judicially supervised sale (clause 118(6)).
24. Because the land law of the State or Territory might not be consistent
with the enforcement of security interests against personal property,
clause 118(5) would provide a regulation-making power to enable State
or Territory land laws to be modified for the enforcement of security
interests in personal property. The Bill has been developed in
consultation with the States and Territories and they endorse this
option of using the State and Territory land laws to enforce security
interests in both personal property and land. The States and
Territories have also approved the text of this Bill.
Consumer Credit Code
25. Where collateral is used for consumer purposes, the Bill and the Code
would operate concurrently and, in these circumstances, a secured
party would have to comply with both the requirements in the Bill and
in the Code.
26. Whether the Code would apply, would depend on the purpose of the
credit. The Code establishes the rights and obligations of parties where
credit has been provided, or is intended to be provided, wholly or
predominantly for personal, domestic, or household purposes.
27. There would be overlap between the Bill and the Code when the credit is
provided, or is intended to be provided, wholly or predominantly for
personal, domestic, or household purposes, and the collateral is used
wholly or predominantly for personal, domestic, or household purposes.
The Code may not apply where the credit was intended for business
purposes, even if the credit is secured against personal property that is
used wholly or predominantly for personal, domestic or household
purposes.
28. The Code and the Bill contain similar requirements for enforcement, but
they also contain requirements on which the other is silent, as well as a
number of corresponding requirements.
29. Where both the Code and the Bill contain similar obligations,
regulations under the Bill would provide that a secured party who has
complied with the relevant provision of the Code would be deemed to have
complied with corresponding obligations in the Bill (clause 119(2)).
30. The regulations are likely to deem compliance, where the provisions in
the Bill and the Code are similar and there would be no significant
impact on the rights of parties if there is deemed to be compliance.
31. 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 the secured party must comply with the requirements
in the Bill; and
. where there are corresponding requirements in relation to the same
party 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.
Example
Bank A has a security interest in Grant A's stereo set. Vikram
uses the stereo at home. When Grant A defaults on her loan with
Bank A, Bank A decides to take enforcement action against Grant A's
stereo. As Grant A uses the stereo predominantly for personal use,
Bank A must comply with all the obligations in the Code as well as
the requirements in the Bill.
As required by the Code, Bank A provides a pre-possession notice to
Grant A and gives her 30 days to remedy the default. Pursuant to
the Consumer Credit Code, Bank A obtains a court order allowing it
to enter Grant A's residence and take possession of the stereo. As
required by both the Code and the Bill, after gaining possession,
Bank A provides a notice advising Grant A that it intends to
dispose of the stereo.
The Code prevents Bank A from selling the stereo until 21days have
elapsed after giving notice. The Bill requires only a period of
10days to have elapsed before Bank A could dispose of the stereo.
The regulations could provide, however, that if Bank A complies
with the requirements in the Code, Bank A would be deemed to have
complied with the Bill. Accordingly, Bank A gives Grant A the pre-
disposal notice and waits until 21 days have elapsed before it
sells the stereo. Bank A would have complied with the Code and
would be deemed to have complied with the Bill.
32. The following Table lists the respective rights, duties and obligations
contained in the Code and the Bill and details how the Bill and Code
would operate when there are concurrent or conflicting duties.
Interaction between the Code and the Bill
|The Code |The Bill |
| | |
|After default, the credit provider |The Bill doesn't specify the formal |
|would have to provide notice to the |requirements for after default and |
|debtor specifying the action required|before seizure of the collateral. |
|to remedy the default. The credit |Therefore the Bill would not prevent |
|provider would have to wait at least |the operation of the Code (a secured |
|30 days before taking enforcement |party enforcing against collateral |
|action (s80). |used as a consumer good would |
| |therefore have to send a notice prior|
| |to seizure as required in the Code). |
| | |
|A secured party cannot enforce a |The Bill does not provide any |
|security interest against a guarantor|pre-seizure conditions where the |
|(a person who executed the security |grantor is not the debtor. |
|agreement but is not the debtor) |Accordingly, the requirements in s82 |
|unless: |of the Code would have to be |
|judgment has been obtained against |satisfied before a secured party |
|the debtor and remains unsatisfied; |could enforce against a guarantor. |
|or | |
|the court has relieved the credit | |
|provider from obtaining judgment | |
|against the debtor; or | |
|the debtor cannot be located (s82). | |
| | |
| | |
|A secured party must seek the consent|The Bill does not contain any minimum|
|of a court to seize goods where the |amount that would have to be |
|amount outstanding is less than 25% |outstanding before enforcement action|
|of the credit provided or $10,000 |could take place. The restrictions |
|whichever is the lesser amount (s83).|in s83 of the Code would apply. |
| | |
| | |
|An acceleration clause in a contract | |
|or mortgage may only be applied in | |
|certain circumstances (s84-85). | |
| | |
|Postponement of enforcement action |The Bill is silent on the issue of |
|could be negotiated between the |postponement of enforcement action |
|parties or ordered by a court |and where a debtor, mortgagor or |
|(s86-89). |grantor sought a postponement, the |
| |provisions in the Code relating to |
| |postponement would apply. |
| | |
|A secured party may seek details of |Nothing would prevent a secured party|
|the whereabouts of collateral from a |from seeking information under s90 of|
|debtor (s90). |the Code. |
| | |
|The concurrent application of the |A secured party could seize |
|Code and the Bill means that a |collateral if the debtor is in |
|secured party may, under the Bill |default (clause 123). |
|seize collateral used predominantly |A secured party with possession or |
|for personal, domestic or household |control could seize the collateral by|
|purposes if any applicable |serving a notice on the grantor, or |
|preconditions in the Code have been |where the collateral is a licence, |
|complied with. |the licensor (clause 124). |
| |A secured party with a higher ranking|
| |could seize the collateral from the |
| |possession of a lower ranking party |
| |(clause 127A) . |
| | |
|A secured party cannot enter |The Bill provides that a secured |
|residential premises to take |party could seize the collateral by |
|possession of collateral without the |any method permitted by law. As a |
|permission of the occupier or an |result, a secured party would have to|
|order from court (s91-93). The Code |comply with the Code's regulation of |
|is silent on apparent possession and |seizure. If collateral cannot be |
|accordingly parties could seize by |readily moved from a grantor's |
|apparent possession under clause 164 |premises or adequate storage |
|of the Bill unless the parties have |facilities are not available a |
|contracted out of this provision. |secured party may seize the |
| |collateral by taking apparent |
| |possession of the collateral |
| |(clause 123 and clause 126). |
| | |
|Within 14 days of taking possession |A secured party would have to give |
|under a mortgage a secured party must|notice to the grantor and to any |
|provide notice to the mortgagor with |secured party with a higher priority |
|all relevant details and must not |at least 10 business days before the |
|sell the goods within 21 days of |collateral is to be disposed of |
|providing the notice (s94). |(clause 130). |
| | |
| |
|Example of Possible Regulation: The regulations could provide that the |
|requirement in clause 130 would be taken to have been complied with, if a |
|notice to the mortgagor is provided as required by section 94 of the Code. |
| | |
|A debtor may nominate a person who is|The Bill would not prevent the |
|prepared to purchase the goods (s95).|application of s95 of the Code. |
| | |
| | |
|If the outstanding obligation has not|After seizing collateral, a secured |
|been paid within 21 days after |party would have to dispose of the |
|receiving the notice under section 94|collateral by sale and must obtain |
|the secured party must sell the |the market value or, if the |
|goods, either for the estimated value|collateral does not have a market |
|or a higher price to a nominated |value, the best price reasonably |
|buyer or to another person for the |obtainable (Clause 128 ). |
|best price reasonably obtainable | |
|(s96). | |
| |
|Example of Possible Regulation: The regulations could provide that the |
|requirement in clause 128 and clause 130 of the Bill would be taken to have |
|been complied with if the secured party complied with s96 of the Code. |
| | |
|After the sale of mortgaged goods a |A secured party would have to give |
|secured party must give the mortgagor|the grantor, higher secured parties |
|a notice stating the gross amount |and the debtor a notice with the |
|realised, the net proceeds of the |total amount received from the sale, |
|sale, the amount required to pay out |the enforcement expenses, amounts |
|the credit contract and any further |paid to other secured parties and the|
|action the secured party intends on |balance owing to the grantor or by |
|taking (s96(3)). |the debtor to the secured party |
| |(Clause 132). |
| |
|Example of Possible Regulation: The regulations could provide that |
|clause 132 of the Bill would be taken to have been complied with if a notice|
|is given to the mortgagor (grantor) in terms of s96(3) of the Code |
| | |
|A secured party is entitled to deduct|A secured party would have to |
|the following amounts from the money |distribute funds received in the |
|received from the sale: |following order: |
|the secured amount outstanding; |interests with a higher priority; |
|the amount payable to discharge any |enforcement costs; |
|prior mortgage; |higher ranking security interests; |
|the amounts payable to discharge |lower priority interests and security|
|subsequent mortgages of which the |interest; |
|secured party had notice (s97). |grantor (Clause 140). |
| |
|Example of Possible Regulation: While it is arguable that s97 does not |
|provide an order for distribution, it limits the amounts that may be |
|deducted to secured amounts. The regulations could provide that clause 140 |
|of the Bill would be taken to have been complied with s97 of the Code has |
|been complied with. |
Enforcement rights where there are multiple secured parties
33. Any secured party, regardless of its priority ranking, would be able to
commence enforcement action under the Bill. To ensure that this does not
prejudice higher ranking secured parties, a higher ranking party would be
able to 'take-over' enforcement proceedings and obtain possession of the
collateral from a lower ranking enforcing secured party (clause 121(3)).
This would apply to all collateral.
Notice
34. The notice provisions would require an enforcing secured party to give
notice of its intended action at different stages of the enforcement
process:
. before a secured party removes an accession (clause 95);
. before a secured party initiates enforcement action under the
incorporated land laws of a State or Territory (clause 118);
. before a secured party takes enforcement action against liquid
collateral (clause 121);
. before a secured party disposes of collateral (clause 130);
. after a secured party has seized and disposed of the collateral or
keeps the collateral for disposal at a later date it would have to
provide a statement of account (clause 132);
. before a secured party can retain the property (clause 135).
35. Where the collateral is used predominantly for personal, domestic or
household purposes, additional notice requirements in the Code would also
apply.
36. Enforcement notices would generally only be required to be given to the
grantor, who stands to lose their rights in the collateral and higher
ranking secured parties (who have a right to seize the collateral and
commence their own enforcement action). Secured parties would not be
required to give notice to lower ranking secured parties, as this would
increase the cost burden on the enforcing secured parties, thereby
reducing the money available for distribution. Lower ranking secured
parties would, however, be able to negotiate additional notice provisions
or to extend the provision of notices to themselves.
37. There are, however, two circumstances which would require notice to be
given to a wider group of persons:
. where a secured party intends to use the incorporated provisions of
a State or Territory land law, they need to give notice to the
grantor, any person with a perfected security interest and any
person who has notified the secured party of their interest in the
property (clause 118(2)). This notice is required because the
procedures and remedies under the incorporated land law might
differ from those in the Bill and lower-ranking secured parties may
wish to engage in the proceedings (clause 118(6));
. Where a secured party intends to retain the collateral, they would
need to provide notice to the grantor or to a secured party with an
interest perfected by registration. This notice is required
because where a secured party retains the collateral it does so,
without having to pay other secured parties any obligations still
owed to them and notice would enable them to object to retention or
negotiate for compensation.
38. Despite the general requirement for providing notice when undertaking a
step in the enforcement action, enforcing secured parties are not
required to give notice when:
. the secured party has failed to locate the person to whom the
notice must be sent;
. a person (including the grantor) has waived their right to receive
the notice; or
. a court has ordered that a notice is not required for any other
reason.
Enforcement of liquid assets
39. The Bill would provide for enforcement against collateral consisting of
debts due to the grantor from a third party, including accounts, chattel
paper, investment instruments in the form of debt obligations or
negotiable instruments. Because this collateral is the equivalent of
cash, a separate enforcement process would be provided to ensure that the
secured party would not have to go through a two-step process and could
realise the collateral by collection directly from the third party
(clause 120-121).
40. When liquid assets are collected, the enforcing secured party would
have to apply the assets to discharge the obligation secured by the
security interest and distribute any amounts received in accordance
with the Bill (clause 140).
Example
Grant A owes Finance A $30,000. To secure the loan, Finance A has
taken a security interest in Grant A's bank account held with Bank
A. Finance A is the highest ranking secured party. On 1 January
2028, Grant A defaults on his loan repayments to Finance A. On
6 January 2028, Finance A gives written notice to Bank A requiring
it to pay $30,000 from Grant A's bank account. On 8 January 2008,
Bank A pays Finance A $30,000 from Grant A's bank account, that is,
within 5 days of receiving the notice. Finance A applies the money
received from Bank A ($30,000) towards discharging the obligation
that Grant A owes it.
41. The secured party would have to give a written notice to higher
ranking secured parties within 10 business days before the day on
which third party notice is given or control of the asset is taken
(whichever applies) (clause 121). This would allow the higher ranking
secured party to take enforcement action in its own right
(clause 121(3)). The enforcing secured party would also have to
notify the grantor within 5 business days after the day on which
action is taken (clause 121(4)).
42. When liquid assets are collected, the enforcing secured party would
have to apply the assets to discharge the obligation secured by the
security interest and distribute the balance as required by the Bill
(clause 120(5)).
Seizure and disposal or retention of collateral
Seizing collateral
43. On default by a grantor, when the secured party wishes to initiate an
enforcement action, it would need to seize the collateral. The Bill
would provide for this right to seize the collateral, in the event
that a contract failed to do so. A secured party would be able to
seize the collateral by any method permitted by law where the debtor
is in default under the security agreement (clause 123(1)). This
would enable secured parties to determine the method of seizure that
is most appropriate for the collateral and their circumstances.
44. Where the collateral is an intangible, the secured party cannot
physically possess the collateral but the Bill would deem seizure to
have occurred if a secured party takes steps to gain control. If the
collateral is a licence, the secured party could effect seizure by
giving notice of possession to the licensor and either the grantor or
the grantor's successor. If the collateral is any other type of
intangible (for example, an investment instrument) a secured party
ccould seize the collateral after giving notice to the grantor
(clause 123(2)).
45. A secured party who has perfected the security interest by possession
or control is taken to have seized the collateral (clause 124).
46. Taking possession of the collateral implies removing it from the
grantor's premises to the secured party's premises or control.
Physical removal would not always be possible and therefore a secured
party could take 'apparent possession' of collateral where it cannot
be readily moved from a grantor's or the grantor's agent's premises or
where adequate storage facilities are not available (clause 126).
47. Apparent possession would enable a secured party to enforce their
interest where they cannot seize the property or where they have no
storage facilities. It provides notice of the transfer of the
collateral from the grantor to the secured party. Once a secured
party has gained apparent possession, any interference with this
possession would be an interference with the secured party's rights.
48. A secured party who takes apparent possession may dispose of the
collateral on the grantor's property. To ensure that this provision
does not work unfairly against grantors, the Bill would provide that
secured parties would not be able to cause to the grantors, any
greater cost or inconvenience than is necessarily incidental to the
disposal (clause 126(2)).
Example
Bank A has decided to enforce its security interest in Person A's
grain which is located in a silo on her property. Bank A is unable
to find adequate storage facilities in the vicinity of her property
and, after meeting the notice requirements under the Bill,
advertises Person A's grain for public sale by auction, despite not
having actual possession of the grain. Bank A decides to conduct
the auction on Olga's property, and to run a small market at the
auction on Person A's property. The market stalls are not
'necessarily incidental' to the sale. Bank A does not have the
right to operate the market stalls. As the stalls will be on
Person A's property, she can prevent Bank A from conducting the
market stalls.
Seizure by parties with a higher priority
49. At any time when a secured party has taken possession of collateral, a
higher ranking secured party could require that the secured party give
it possession of the collateral (clause 127(2)). To seize collateral
from a lower ranking party, a higher ranking party would have to
provide it with a written notice requiring possession. A lower ranked
enforcing secured party would have to comply with the notice within
5 business days of receiving it or within a reasonable period given
the circumstances.
50. A higher ranked party that has gained possession of the collateral
would have to pay the enforcement costs of the lower ranked party
within 20 business days after the later of either:
. disposing of the collateral; or
. receiving evidence that the lower ranking party has incurred those
costs.
51. If not paid, the outstanding enforcement costs would become a debt due
by the higher party and the lower ranked party could initiate court
action to recover these costs.
52. A higher party who has seized the collateral from a lower ranked party
would be required to dispose of or retain the collateral.
Example
Finance A decided to commence enforcement action against Person A
who was in default of a security agreement over a small aircraft.
Finance A's security interest was second in priority to that of
Bank A. Finance A took possession of the aircraft and gave notice
to Bank A. Bank A gave written notice to Finance A to give
possession of the aircraft to Bank A. Finance A must comply. Bank
A takes over enforcement action.
53. By enabling any secured party to seize and enforce against the
collateral, the rights of junior secured parties would be protected,
in that they would not be reliant on higher ranking parties to take
action. Conversely, the right of a higher ranking party to seize
would enable a higher ranked party to protect its own interests.
Disposing of collateral (including by purchasing collateral)
54. Secured parties who seize collateral under the Bill are required to
dispose of collateral or retain the collateral themselves
(clause 125). Disposal relates to three different types of remedies:
. sale to a third party;
. sale where the collateral is purchased by the enforcing secured
party; and
. lease or licence to a third party.
55. The disposal provisions would apply to all collateral including
intangibles such as licences. A secured party would be able to
dispose of collateral by sale or lease to a third party
(clause 128(2)) and any proceeds arising from the disposal would need
to be distributed in accordance with the Bill (clause 140).
56. The Bill would not require immediate disposal after seizure and
recognises that disposal might need to be delayed, in whole or in
part, to obtain a higher price or for other reasons. The secured
party would only be able to delay the disposal where it would be
reasonable in the circumstances or in accordance with the security
agreement (clause 125(3)). The parties would be able to contract out
of this provision.
Disposal by sale
57. The Bill would provide that a secured party could choose the method of
sale, including private or public sale, auction or closed tender
(clause 128(2)).
58. The secured party would be able to be dispose of the collateral as a
whole or in parts, where it would be difficult to dispose of the
collateral in its entirety (clause 128(5)). This could result in
different components being sold at different times.
59. Disposal of licences would have to be in accordance with the terms and
conditions of the licence (clause 128(6)).
Disposal by lease
60. A disposal by lease could only occur if expressly provided for by the
security agreement (clause 128(2)). The disposal would be at the time
the lease is entered into (clause 128(3)) and the terms of a lease
would be determined by the security agreement.
Example
Manufacturer A sells new office furniture and leases new and used
office furniture. Almost all of its business is aimed at providing
office furniture for small to medium sized businesses. Grant A has
entered into a conditional sale agreement to buy office furniture
from Manufacturer A. Under the agreement, Grant A will pay the
purchase price of the office furniture over a period of 9 months.
The sale agreement provides that the office furniture will continue
to be owned by Manufacturer A until the last instalment has been
paid. The sale agreement also provides that if Grant A defaults on
the sale agreement, Manufacturer A is able to dispose of the office
furniture either through sale or through a lease arrangement. If
the office furniture is leased it must be leased for a minimum of
3 months. Grant A defaults on its sale agreement. Manufacturer A
seizes the desks and chairs under the Bill and leases them
according to the terms in the sale agreement.
Purchase of collateral by the secured party
61. A secured party who seizes commercial collateral would be able to
dispose of the collateral by purchasing it (clause 129).
62. A significant concern of interested parties would be that a secured
party could purchase the collateral for less than its market value.
Therefore a secured party would need to provide notice of its
intention to purchase to the grantor and other interested parties, who
could then object to the purchase. A secured party would only be able
to purchase the collateral if there is no objection to the purchase
(clause 130).
63. A secured party would only be able to purchase collateral by public
sale (including auction or closed tender) for an amount which is equal
to or more than the market value of the collateral (clause 129(3)).
64. Regardless of how it intends to dispose of the collateral, a secured
party who has seized the collateral would be required to provide
notice of its intention to dispose of the collateral (clause 130).
Interested parties would have the opportunity to seek to redeem or
reinstate the collateral or to monitor disposal to ensure it is
conducted in a commercially reasonable manner.
65. A secured party would be required to notify the grantor and higher
ranking secured parties at least 10 business days before the day on
which the collateral is to be disposed of (clause 130(3)).
66. The secured party would not be required to give notice in certain
circumstances (clause 130(5)) including where:
. the secured party believes on reasonable grounds that the secured
party was induced to enter the security agreement as a result of a
fraud by the grantor or debtor;
. the secured party, after making reasonable attempts to locate the
person, has failed to do so;
. financial damage may be suffered if collateral is not immediately
disposed of;
. the collateral is perishable and may perish within 10 days after
the collateral is seized;
. the secured party reasonably believes that the value of the
collateral will materially decline if not disposed of immediately;
and
. the collateral is foreign currency.
67. The first exemption would enable a secured party who was induced into
a security agreement by fraud to dispose of the property without
intervention from the grantor or debtor which could delay the disposal
process. Other exemptions would ensure that the notice provisions
would not prejudice the interests of all parties in obtaining the
maximum value to be gained from the collateral.
Duties owed by a secured party when disposing of collateral
68. When disposing of collateral to third parties, the secured party would
owe a duty to exercise reasonable care to:
. obtain at least the market value for the collateral; or
. if there is no market value, to obtain the best price that is
reasonably obtainable, having regard to the circumstances that
exist at the time (clause 131). This is the same duty required of
a controller of disposing of corporation property under s420A of
the Corporations Act.
69. Breach of this provision would not depend on an actual failure to
achieve either the market price or the best price reasonably
obtainable but would depend on whether all reasonable care was taken
to sell the property for its market value, or alternatively for the
best price reasonably obtainable.
70. The provision requires that the collateral be marketed in a manner
appropriate for sale of collateral of that type and compliance in each
case would depend on the particular circumstances. The secured party
exercising a sale would be expected to, where appropriate, obtain
proper valuations, advertise appropriately, maintain the collateral in
good condition pending sale and choose an appropriate venue for the
sale.
71. This provision would ensure that the enforcing secured party obtains
the best possible price rather than merely satisfying its own
interests. This duty operates in conjunction with the requirement for
secured parties to exercise their rights honestly and in accordance
with ordinary commercial practice (clause 111). This would be in the
interests of the debtor (who would need to make good any shortfall in
the sale price and outstanding obligations) and other secured parties
who would have to take separate legal proceedings to obtain any
outstanding debts from the debtor.
72. A failure by the enforcing party to attempt to obtain the best
possible price could result in a statutory breach which would enable
other interested parties to take legal action to either ensure that
the best possible price were obtained or to claim damages suffered as
a result of the statutory breach.
Statements of account
73. The statement of account would be the means by which enforcing secured
parties would account to interested parties on the disposal of the
collateral and distribution of the proceeds.
74. Where a secured party has disposed of collateral or exercised its
collection rights, interested parties would be entitled to all
relevant financial information, such as the amount received, the
enforcement costs, and the debts outstanding. The enforcing secured
party would only be obliged to provide this statement on request from
a grantor, debtor or a higher ranking secured party (clause 132(1)).
75. Where the secured party has not disposed of the collateral within 6
months of seizing the collateral, they would have to provide a written
statement of account showing the total amount received for the
collateral and the expenses incurred in maintaining the collateral
(clause 132(7)). A new statement would need to be given for each 6
month period after seizure if the collateral is not disposed of within
this period (clause 132(4)). The secured party would have to give
this statement to the grantor, debtor and higher ranking secured
parties when requested to do so.
76. Statements of account would need to be provided within 20 business
days following the request or such further period as would be
reasonable in the circumstances (clause 132(2) and clause 132(6)).
77. Collateral acquired after disposal would be acquired free of the
interests of the grantor of the security interest, the security
interest of the enforcing secured party and all security interests
lower in priority to the interest of the enforcing secured party
(clause 133), but subject to the security interests of higher ranked
parties. The higher ranking security interests would be able to be
discharged in accordance with the security agreement if sufficient
funds were available.
78. The rules relating to an acquirer taking free of security interests
would need to be read in conjunction with the distribution rules
(clause 186), which require payment to the higher secured party ahead
of amounts owed to the enforcing secured party. Where the obligation
owed to a higher ranking secured party has been discharged, the person
acquiring the collateral would not be subject to that security
interest.
Retaining collateral
79. The Bill would also allow a secured party to enforce their security
interest by retaining collateral they have seized (clause 134).
However, the collateral could not be retained if it is used
predominantly for personal domestic or household purposes (clause
109(5)).
80. There would be cases where it is commercially advantageous for a
secured party to retain collateral rather than sell it and the Bill
would allow them to do so. This right to retain collateral
corresponds to a creditor's existing right to seize and retain
collateral on default under a retention of title arrangement.
However, retention is not an absolute right and the Bill would provide
a process to ensure that the interests of all interested parties are
taken into account. This is particularly important given that the
remedy of retention would not require a secured party to compensate
other interested parties for the loss of their interests in the
collateral.
Objection to purchase or retention
81. Before a secured party could retain property, it would be required to
provide notice of its intention to the grantor and other registered
secured parties (clauses 135-138).
82. Persons receiving notice would be able to object to the secured
party's proposal of retention by providing notice to the secured party
at least 10 business days or a shorter period (agreed to by the
objector) before the enforcing secured party takes steps to retain the
collateral (clause 137(2)).
83. On receiving an objection, a secured party would be entitled to seek
proof of the objector's interest in the collateral. If such proof is
not provided within 10 business days of the request, the notice of
objection would be taken not to have been given (clause 138).
84. If the secured party receives a notice of objection, it could sell or
lease the collateral rather than retain or purchase it
(clause 135(3)).
85. If a secured party receives no objections by the end of 10 business
days after the day the last notice is given, they would be taken to
have irrevocably elected to acquire the collateral (clause 136(1)).
Thereafter, the secured party would become the unencumbered owner of
the property and would have no rights against the grantor in respect
of any outstanding obligation. A secured party would need to ensure
that legal title to the property passes to them as this would not
occur by operation of law.
86. Secured parties subordinate to the retaining secured party and the
grantor(s) would also be able to object to the retention of the
collateral. This is especially important as the retention provision
does not provide for subordinate parties or the grantor to receive
anything if the value of the retained collateral is greater than the
amount owed to the retaining secured party. It is likely that before
they agree to retention of collateral by the enforcing secured party,
other secured parties would negotiate acceptable terms of
compensation.
87. The Bill would provide that a secured party who acquires title to the
collateral acquires the collateral free of their own security
interests as well as the security interests of the grantor and
subordinate security interests (clause 136(2)).
Rules applying after enforcement
88. Any proceeds received from the collateral either through enforcement
against liquid collateral (clause 120) or by disposal (clause 128)
would have to be applied according to the distribution rules in the
Bill (clause 140).
89. This distribution would mean that, where there are insufficient funds,
parties lower in the order would not recover the amount due to them.
Where a secured party does not receive funds from the distribution or
there is a shortfall in the amount received, they would be able to
take legal action against the debtor personally for the outstanding
obligation.
Redemption
90. The right of redemption is the right to cure the default and redeem
the collateral at any time before the collateral is irrevocably
disposed of by sale or foreclosure.
91. The Bill would provide the debtor, the grantor and higher ranking
secured parties with a right to redeem the collateral (clause 142(1)).
92. A debtor's right to redeem the collateral would have priority over the
right of any other party, including that of a higher ranking secured
party, to redeem the collateral (clause 142(3)).
93. Redemption would be given effect when the redeemer pays the amount
required to discharge the obligation secured by the collateral and the
amount of any enforcement expenses incurred by the secured party,
secured by the security interest.
94. Parties to a non-consumer transaction would be able to contract out of
the right of redemption (clause 115). A person entitled to redeem
would also be prohibited from accessing the redemption provisions if,
after the default occurred they had agreed with the secured party not
to redeem the property (clause 142(2)).
Reinstatement of the security agreement
95. The Bill would provide a right of reinstatement of the security
agreement prior to the exercise of enforcement action.
96. The right to reinstatement would enable a person to reinstate the
security agreement by paying the amount of arrears and the amount of
any expenses incurred as a result of the enforcement action. The
right of reinstatement would protect grantors and debtors where their
default is minor, temporary and atypical.
97. The Bill would establish safeguards against possible abuse of the
right of reinstatement. A security agreement could only be reinstated
once and the person seeking reinstatement would have to pay not only
the amount in actual arrears but also cure any other default and
reimburse the secured party for their enforcement expenses
(clause 143(1)).
Chapter 5 - Personal Property Securities Register
1. The Bill would establish a single national online Personal Property
Securities Register (the PPS Register) under which personal property
that is or may be subject to a security interest can be registered.
The main object of the PPS Register would be to provide a real-time
online noticeboard of personal property over which a security interest
has been, or may be, taken. The PPS Register would replace the
existing array of electronic and paper-based registers. It would be a
voluntary registration scheme, allowing secured parties to weigh up
the costs and benefits of registering a financing statement for a
security interest.
2. In most cases, the registrations contained on the PPS Register would
relate to security interests. All security interests in personal
property would be registrable regardless of the form of the security
interest, the legal personality of the grantor of the interest, the
nature of the collateral or the jurisdiction in which the property or
the parties are located. Registration of security interests would be
voluntary. However, parties should be aware that failure to register
a security interest on the PPS Register could result in a loss of
priority to a third person or unenforceability against a liquidator,
administrator, trustee in bankruptcy or the Official Receiver.
3. A person would also be able to search the PPS Register to determine
whether a prior registered interest exists prior to purchasing
personal property or lending money in relation to the property.
4. A simple targeted electronic 'registration' would provide notice to
the world of any actual or prospective security interests without the
need to sift through complex documentary material as is currently the
case with many of the existing schemes. This would make the advance
registration of security interests possible; that is, property would
be able to be registered on the PPS Register before a security
agreement is made or the security interest attaches to it.
5. The PPS Register could also contain information about other interests
over personal property prescribed by the regulations, for example,
interests that arise in vehicles impounded by State and Territory
police or property subject to confiscation orders under proceeds of
crime laws.
6. While the PPS Register would be accessible using a web browser, it
would also be supported by a business to government interface, a
physical document lodgement service, a contact centre and SMS message
connectivity. PPS Register information would be transmitted using
secure, encrypted methods of communication.
Example
Grant A applied for a loan with Finance A using its business assets
to secure the loan. Finance A registered the business assets on
the PPS Register before approving the loan.
7. During development of the Bill, concerns were expressed about possible
scope creep of the PPS Register. These concerns related to two
particular functions of the Register. The first concern was a
possible increase in the authorised purposes for which a search could
be made by reference to the name and date of birth of an individual
(clause 172). Consequently, the authorised purposes for searches by
reference to the name and date of birth of an individual could only be
altered by the Parliament and it would not be lawful to alter the
authorised purposes without Parliamentary scrutiny.
8. The second concern was the type of interest that could be included on
the Register. The definition of security interest (clause 12) would
only be able to be amended by legislation. However, the Bill would
also allow for the registration of other interests in classes of
personal property to be determined under the regulations (clause 148).
Therefore any Regulations made under this provision would have to
take account of privacy concerns, and include a Privacy Impact
Assessment where appropriate.
Establishment of the Register
9. The PPS Register would be established and maintained by a Registrar of
Personal Property Securities (clause 147(1)). Data that is recorded
in the PPS Register would be the property of the Commonwealth (clause
147(2)). Clause 147(3) would allow the Registrar to keep the Personal
Property Securities Register in any form that he or she considers
appropriate. This provision is based on s1274(1) of the Corporations
Act, which allows ASIC to 'keep such registers as it considers
necessary in such form as it thinks fit'. This would ensure that
the focus is on the outcomes to be delivered rather than the manner in
which the obligations are discharged. The Bill would also
be 'technology neutral' so that the Registrar would not be
constrained in the discharge of his or her obligations under the Bill.
For example, the Bill would allow the Registrar to accept documents
in hard copy form, over the internet through a web browser, or over
the internet using XML messaging technology.
10. While the Registrar would be able to keep the Register in any form
that he or she considers appropriate (clause 147(3)), the Government
proposes to implement a fully electronic register.
11. The PPS Register would be maintained and operated at all times
(clause 147(4)). This means that it would be available day and night,
as well as on weekends and public holidays, when large numbers of
secured transactions would take place. However, the Registrar would
be able to refuse access to, or suspend the operation of the PPS
Register, in whole or in part, where it would not be practical to
provide access (clauses 147(4)-(5)). If this occurs, the Registrar
must publish notice of the suspension or refusal in a way prescribed
by the regulations and, if not prescribed, by Gazette (clause 147(6)).
Example
The Registrar may consider that it is not practical to maintain the
PPS Register when upgrading the IT system or during an IT failure
that closed down part of the PPS Register.
12. The PPS Register could contain a range of information about personal
property that is, or will become, subject to a security interest
(clause 148). This would allow buyers and financiers to readily
identify property that is subject to an actual or potential security
interest.
13. There would also be scope to register property subject to other kinds
of interests, such as those which arise in vehicles impounded because
of their use in unlawful activities and confiscation orders made under
proceeds of crime laws (clause 148). Any such interests could be
included on the PPS Register by regulation, with the provisions in
Chapter 5 being applied with appropriate modifications. This is
designed to help prospective purchasers and lenders to obtain up-to-
date information about the status of personal property.
Example
Person W wants to buy a car from an acquaintance. The acquaintance
agrees but advises that he will not be able to deliver the car
straight away. Person W searches the PPS Register. The search
result discloses that there are no security interests over the car
but that it has recently been impounded by the police.
Registration
14. A person would be able to apply to the Registrar to register on the
PPS Register under a financing statement (or a financing change
statement to amend a registered financing statement) with respect to a
security interest or other kinds of interest prescribed in the
regulations (clause 150).
15. The term 'financing statement' refers to the data that is, or is to
be, registered on the PPS Register (clause 10, financing statement).
The term 'financing change statement' in turn means data that amends a
financing statement that is registered on the PPS Register (clause 10,
financing change statement). These terms have been adopted because
they are also used in other jurisdictions that have a PPS regime, such
as New Zealand and Canada.
16. The Registrar would have to register the financing statement or
financing change statement if:
. the application is in a form approved by the Registrar;
. the registration fee (if any) has been paid or an arrangement for
payment has been made;
. the Registrar is not satisfied that the application is frivolous,
vexatious or offensive, contrary to the public interest or made in
circumstances in which the registrant does not believe on
reasonable grounds that it holds or will hold a security interest
in the property stated in the application; and
. the registration is not prohibited by the regulations
(clause 150(3)).
17. If the financing statement or financing change statement does not
satisfy any of the above, the Registrar would not be required to make
the registration. The Registrar's decision not to make the
registration would be reviewable by the Administrative Appeals
Tribunal (clause 191).
18. A person would not be able to apply to register a financing statement,
or a financing change statement, in relation to a security interest
unless the person believes on reasonable grounds that a security
interest in the property is, or would be held by a person stated in
the application as a secured party (clause 151(1) and (7)). Where a
person registers without such a belief they would be taken to have
contravened an obligation owed to any person with an interest in the
personal property (clause 151(5)).
19. A person who applies for a financing statement or financing change
statement, would be required to end the registration where:
. the collateral has never (since the statement was registered)
secured an obligation owed by a debtor to the person stated in the
registration to the secured party; and
. there are no reasonable grounds for believing that the collateral
secures, or would secure, such an obligation
20. In cases where there have never been reasonable grounds for believing
that the collateral secures or would secure the obligation, the
registration would have to end as soon as practical or within 5
business days of the day of registration or if there are any no longer
any reasonable grounds for that belief, as soon as practical or within
5 business days of the reasonable grounds for the belief ceasing.
(Clause 151(2)-(3)).
21. The failure to discharge the obligation to only register a financing
statement, where the person believes on reasonable grounds that the
collateral secures or would secure a security interest ,would not
affect the validity or effectiveness of the registration
(clause 151(6)). However, the failure to discharge the obligation
would attract a civil penalty (clause 151(1)) and give rise to a claim
for damages (clause 271). The onus of proving a breach of clauses
151(1)-(2) would rest on the person making the claim (clause 151(4)).
22. Civil penalties could apply to breaches of these provisions. The
maximum penalty for each breach would be 50 penalty units for an
individual, and 250 penalty units for a body corporate (clause 151(1)-
(2)). The 'corporate multiplier' (that is, maximum fine applicable to
individuals would be multiplied by a factor of five for a body
corporate) reflects the corporate multiplier in s4B(3) of the Crimes
Act 1914. The maximum penalty level is considered to be sufficient in
light of the potential impact unauthorised registrations could have on
those relying on the registrations as well as the ability of persons
with an interest in the property to recover for any loss or damage
resulting from these breaches.
23. The Registrar could register a financing statement, or a financing
change statement, even if the personal property, or the person who
owns or has rights in that property, is located outside Australia
(clause 152). This is subject to the necessary connection with
Australia being satisfied (clause 6).
24. While applications for registration would have to be in writing, they
would largely be lodged electronically through a web browser or
through a business to government interface. The Electronic
Transactions Act 1999 would have the effect that any applications made
in accordance with the Bill could be made by electronic transmission
of words or data or the display or representation of words or data by
any form of communication.
Registration with respect to security interests
25. When a secured party or its agent registers a financing statement or
financing change statement in order to make or amend a registration on
the PPS Register, they would be required or authorised to enter the
following information:
. details about the secured party and related information such as an
address and identifier for giving notices to the secured party
(clause 153(1) table items 1 and 3);
. details about the grantor (clause 153(1) table item 2) but this is
not required for consumer property required by the regulations to
be described by a serial number, because the serial number would be
sufficient to allow a search of the register to disclose a
registration over the collateral without grantor details;
. a description of the collateral and proceeds (including as
prescribed by the regulations (clause 153(1) table item 4),
including:
o a description as either 'consumer property' or 'commercial
property';
o a serial number where required by the regulations;
o allocation to a single class as prescribed by the regulations; and
o where proceeds are claimed, a description of proceeds in accordance
with the regulations;
o the end time of the registration (or end time 'not stated' for
commercial registrations where the collateral is not described by
serial number)(clause 153(1) table item 5);
o details of any subordination agreements (optional)(clause 153(1)
table item 6);
o whether the security interest is (or is to be) a purchase money
security interest (optional) (clause 153(1) table item 7), and
o any other matter prescribed by the Bill or regulations
(clause 153(1) table item 8).
Grantors, secured parties and giving of notices
26. The details to be included on the PPS Register about a secured party
or grantor would be prescribed by regulations.
27. The Bill would require that consumer grantors be identified by their
name and date of birth (or not at all when the collateral is required
by the regulations to be described by serial number) (clause 153,
table item 2).
28. When the secured party or grantor is not an individual, the
regulations could require them to identify themselves by their
Australian Company Number (ACN) issued under the Corporations Act 2001
at registration; their Australian Registered Body Number (ARBN) issued
to a 'registrable body' under that Act; or their Australian Registered
Scheme Number (ARSN). The regulations could also prescribe that
certain trading arrangements, for example partnerships, could be
identified by their Australian Business Number (ABN). For those that
are not required to be identified by their ACN, ARBN, ARSN or ABN, the
required details could be the organisation's name as it appears on the
organisation's constitution.
29. The incorrect entry of the identifier of the grantor would be a
registration error that would result in a registration being
ineffective (and therefore invalid) (clause 164(1)). This could occur
through inadvertence (for example entering one incorrect number when
entering the ACN). In relation to grantors who are individuals, the
error could occur because people are known by more than one name. To
promote certainty, the regulations could specify the sources from
which names and dates of birth would have to be drawn.
30. Secured parties would be wholly responsible for the accuracy of all
details contained in their registrations. However, to assist users to
maintain the accuracy of registrations, the PPS Register could check
the validity of data against other databases (such as the National
Names Index or the Australian Business Register administered,
respectively, by the Australian Securities and Investment Commission
and the Australian Taxation Office). This application of IT
technology would help to promote the integrity of information recorded
on the PPS Register.
31. In order to reflect commercial reality, the PPS Register could enable
an application for the registration of a financing statement or
financing change statement to be made by a secured party group
(consisting of one or more secured parties) and/or multiple grantors
(clauses 153-154). This would be important where people hold or
propose to hold property jointly, or as tenants in common when jointly
accessing credit. There might also be occasions where credit is
offered by multiple secured parties, such as on a joint venture basis.
32. Secured parties would also be able to record a unique identifier
devised by themselves, when giving notice in relation to particular
registrations (clause 153(1) table item 3(b)). This identifier could
be used by secured parties to direct communications to their agents
(clause 289).
Collateral descriptions
33. A focal part of each registration would be the 'collateral
description' which would describe key attributes of the property that
is the subject of the registration (clause 153(1) table item 4).
34. Personal property registrations over consumer property would have to
be described on the PPS Register as either 'consumer property' or
'commercial property' (clause 153(1) table item 4(a)). This
distinction is important because the Bill contains safeguards to
ensure that consumers are not subject to the same rules as commercial
transactions.
35. The other collateral descriptions required under clause 153(1) table
item 4, are discussed below.
Serial numbered goods - motor vehicles and other goods
36. It is proposed that the PPS Register would take the place of existing
State and Territory schemes for registering encumbrances over motor
vehicles (such REVS in New South Wales and VSR in Victoria) and would
extend to certain other property assigned a serial number
(particularly ships and aircraft).
37. In circumstances prescribed by the regulations, such as when the
collateral is consumer property, it would be mandatory to describe
property registered on the PPS Register by its serial number: such as
the vehicle identification number (VIN) or chassis number applied to
motor vehicles (clause 153(1) table item 4(b)). This would assist PPS
Register users to readily identify property. It would also promote
privacy protection as such property would be identifiable on the
Register by the serial number, rather than by the grantor's name.
38. Where serial numbered goods are registered as 'commercial property',
it would be optional for the secured party to record serial numbers
(clause 153(1)). This approach would avoid the inconvenience of
requiring secured parties to continually update the PPS Register in
relation to car-lot inventory and the like.
39. The use of serial numbers to describe collateral would enable the PPS
Register to link with other databases such as the National Exchange of
Vehicle and Driver Information System (NEVDIS), which uses serial
numbers. NEVDIS would return information about whether the vehicle
has been reported as written off or stolen. Including this
information in the search result would give consumers greater
confidence that they are buying property that is not subject to a
security interest or other restriction.
Example
When Grant A decided to buy a car, he searched the PPS Register for
possible registrations. Grant A found that the vehicle was clear
of any registrations and had not been reported as written off or
stolen.
Allocation of a single class and other descriptors prescribed by regulation
40. All of the collateral described in a particular registration would
have to be allocated a single class as prescribed by the regulations
(clause 153(1) table item 4(c)). The types of collateral classes
could be agriculture, aircraft, financial property, goods,
intangibles, motor vehicle and watercraft. In order to reflect
current practice in relation to general company charges, the
prescribed classes could include 'present and after-acquired property'
and 'present and after acquired property except specified property'
(with a capacity to describe the exception in a free text field or
attachment).
41. The PPS Register could be designed so that a user could only ever
choose a single collateral class for each registration. This would
ensure that registrations are allocated to a single class.
42. For some collateral classes or registration types, the regulations
could allow secured parties to enter free text into a separate data
field in the registration in order to provide further particulars of
the property. This would make it easier for third parties searching
the PPS Register to accurately identify the property.
Example
Finance A made a registration against Grant A's wheat crop. It
described the collateral as 'crops', and entered the description of
'wheat' in the free text field.
Example
Finance A made a registration against Grant A's present and after
acquired property apart from scuba equipment. It allocated the
class of 'all present and after acquired property except', and
placed 'scuba equipment' in the free text field.
43. In addition, for some collateral class or registration types, the
regulations could allow the parties to attach documents to their
collateral descriptions.
Example
Purchaser A wants to buy accounts from Grant A. Purchaser A
searches the PPS Register and discovers that the accounts have
already been registered by Finance A. Purchaser A is able to
identify the accounts on the PPS Register by the list of accounts
that Finance A had attached to its registration.
Proceeds
44. A secured party would be able to describe the collateral as including
any proceeds arising from the sale of the property (clause 153(1)
table items 4(d)). This would be important because a security
interest in the proceeds could be perfected and enforced against third
parties. Where proceeds are to be specifically claimed, the secured
party would have to indicate this in the registration in order to
obtain perfection. The regulations will prescribe the way in which
proceeds would need to be described.
End times, default end times and renewal of registrations
45. Registrations would have a period of registration that commences from
the 'registration time' and ends at the moment that the registration
ceases to be available for a real-time search on the PPS Register (the
'end time')(clauses 153(1) table item 5, (clause 160), (clause163) and
(clause 166)). Secured parties could renew a registration by amending
the registered 'end time'.
46. When making a registration, a secured party would have the option of
specifying an 'end time' for the registration. Where an end time is
not specified or does not comply with the rules for default
registration periods, the PPS Register would assign a 'default end
time' according to the type of property and 'default registration
period' (clause 153(1) table item 5 and clause 153(2)).
47. For consumer property and other property described in a registration
by a serial number, the default registration period would be no later
than the end of the day seven years after the registration became
available for search on PPS Register (noting that the registration
would be extendable by increments of up to seven years) (clause 153(1)
table item 5(b)).
48. Commercial property, such as inventory or equipment, would be
registrable for a period of up to 25 years after the end of the day
the collateral becomes available for search (clause 153(1) table
item 5(a)). Alternatively, the secured party could choose not to
state an end time for the registration. Registrations over commercial
property could be extended for increments of up to 25 years or by
amending the registration to record that there is no stated end time.
Example
Finance F registers Grant A's motor vehicle on 1 January 2020.
Finance F does not enter an end time for the registration so that
the PPS Register assigns a default end time of 1 January 2027 in
accordance with the rules for the 'default registration period' for
consumer goods. On 1 January 2027, Grant A has not paid out the
loan secured against the motor vehicle, and tries to extend the
registration by entering an end date of 2 January 2035. Under the
'default registration period' rules, the PPS Register assigns a
default end time of 1 January 2034.
Subordination, purchase money security interests and matters prescribed by
the regulations
49. A secured party would be able to indicate whether the security
interest is (or is to be) subject to subordination agreements
that postpone the secured party's interest to that of another person
on the relevant registration or registrations (clause 153(1) table
items 6). The indication of subordination would be optional because
the subordination would only affect the priority position of those
people bound by it.
50. A secured party would be able to indicate whether the security
interest is (or is to be) subject to be a purchase money security
interest (clause 153(1) table items 7).
51. The regulations would allow for matters relating to the contents of a
registration to be prescribed (clause 153(1) table item 8). It is
envisaged that most matters that would be prescribed by regulation
would concern, but would not be limited to, grantor and secured party
details and collateral descriptions.
52. Apart from registrations relating to security interests, the Bill
would also allow for the registration of other interests over
property, such as those that arise in vehicles impounded by State and
Territory police because of their use in unlawful activities, or
property subject to confiscation orders made under proceeds of crime
laws (clause 154). For such registrations, the required data that
needs to be recorded on the PPS Register would include:
. details of the person who owns or has an interest in the property
(details of the person recorded as prescribed by the regulations);
and
. details relating to the property including the allocation to a
single class as prescribed by the regulations and a statement must
be included of the reason why the property is registered (clause
154).
Verification statements and registration events
53. To help parties manage their registrations, the Bill would establish a
system for verifying registration events.
54. 'Registration event' refers to the registration of a financing
statement or a financing change statement (except where the financing
change statement relates to the removal of old data under clause 216
or the restoration of incorrectly removed data under clause 217)
(clause 155).
55. Where a registration event occurs, the Registrar would be required to
give a verification statement to each person who is or was registered
as a secured party immediately after or before the time of the
registration event (clause 156(1)). Where a registration event
involves an amendment to the secured party address for service, the
Registrar must ensure that the verification statement is sent to the
secured party at the old and amended addresses (clause 156(2)).
Similarly, if the amendment is to omit a secured party, the Registrar
would be required to send a copy of the verification statement to the
secured party at the previously registered address (clause 156(3)).
Example
Credit A registers a financing statement on the PPS Register on 1
August 2010. Soon after, Credit A registers a financing change
statement to add another grantor to the registration. The
Registrar would issue a verification statement to Credit A soon
after the registration of the financing change statement.
56. A verification statement would give secured parties a documentary
basis on which they could check the accuracy of any data added,
altered or removed from the PPS Register by them, their agent or the
Registrar. The statement must be given as soon as practicable after
the time of the verifiable event or the latest verifiable event where
more than one event is notified.
57. The Electronic Transactions Act 1999 would operate alongside the Bill
to allow the Registrar to provide verification statements and other
notices given under the Bill by electronic means. In such cases, that
Act would require that the person consented to the information being
given by electronic communication. However, consent would be able to
be inferred from the person's conduct. For example, the Registrar
would be able to infer consent where a secured party has nominated an
email address as the address for giving notices in relation to the
registration.
58. Recipients of a verification statement would have to ensure that
notices of the statement are given to each person registered as a
grantor immediately before and/or immediately after the registration
event (clause 157(1)). The approved form would authorise that
specified data in the verification statement would not have to be
included in the notice, in case it contains confidential information
such as passwords, but otherwise should contain the same data as that
on the verification statement (clause 157(2)). The notice of a
verification statement would have to be given as soon as practicable
after the relevant registration event (clause 157(3)).
Example
Finance A registers a financing change statement to change the
grantor from Grantor A to Grantor B. Soon after registration,
Finance A receives the verification statement from the Registrar.
Finance A must send a copy of the verification statement in the
approved form and containing the required information as soon as
practical to both Grantor A and Grantor B.
59. Where the collateral is described as commercial property, the grantor
could waive in writing the right to receive a copy of a verification
statement in relation to certain verifiable events (clause 157(3)).
For consumer protection purposes, consumer grantors would not be able
to waive this requirement.
60. If a verifiable event occurs which affects a number of persons
registered as secured parties (whether before or after the events) and
the Registrar considers that it would be inconvenient for verification
statements to be sent to each interested person, the Registrar could
publish a single verification statement in relation to all verifiable
events (clause 158(1)). Where this occurs, the requirement for
individual verification statements would no longer apply. This
process could be used, for example, in relation to data migration from
existing registers to the new PPS Register during the transition to
the new system.
61. A failure to send a notice of a verification statement to the grantor
as soon as reasonably practical would not alter the effectiveness of a
registration. However, it would constitute an interference with the
privacy of a grantor who is an individual for the purposes of s13 of
the Privacy Act 1988 (clause 157(5)) and could give rise to a claim
for damages against the secured party (clause 271). This
'interference with privacy' provision would cover any entity or
individual whether or not they were otherwise subject to the Privacy
Act.
62. The PPS Register would be based on notice filing rather than document
filing. The general rule would be that a registration commences from
the moment that the collateral description becomes available for
search on the PPS Register in relation to a particular secured party
(clause 160(1)).
Example
At noon on 1 January 2020, Finance A applied to register Grant A's
wheat crop on the PPS Register in anticipation of entering a loan
agreement. The collateral was registered from when it became
available for search on the PPS Register at 1 second after noon on
1 January 2020.
63. When a financing change statement is registered to amend data in a
registration, the amended data (for example, added property and any
proceeds as described)) would only be registered from the moment that
the data becomes available for search on the PPS Register (amendment
time) (clause 160(2)). The amended registration would not be taken to
have commenced at the initial registration time, but at the amendment
time.
Example
Finance A has a registration against Farmer B in relation to crops:
wheat that commenced on 1 January 2020. On 1 July 2022, Finance A
amended its registration against Farmer B to describe the
collateral as crops: wheat and barley. The crop: wheat
registration commenced on 1 January 2020, while the crop: barley
registration commenced on 1 July 2022.
64. Personal property would be registrable before or after a security
agreement is made describing the property (clause 161). In addition,
the PPS Register would allow a registration to reflect the transfer of
a security interest or of the collateral before or after the transfer
(clause 162).
65. Advance registration would inform secured parties of the order of
registration (and potentially the order of priority) while still
negotiating the transaction. This would improve certainty in
commercial negotiations as parties could ascertain their rights to
priority over other security interests in personal property.
66. Where a security interest in property is transferred to another
secured party by registering a financing changes statement, the
'registration time' for the property would not be affected.
Alternatively, the prospective secured party could apply to register a
new financing statement. Here, the registration time would, by
operation of law, be the registration time for the original
collateral, provided that the property is continuously perfected since
the initial registration time (that is, there is no gap in time
between the effective registration of the initial financing statement
and the new financing statement).
Example
Finance F sold its security interest in Grant A's crops to Bank A.
The transfer could be reflected in the PPS Register in one of two
ways. Finance F could transfer the registration to Bank A, thereby
effecting a change of the secured party. Alternatively, Bank A
could register Grant A's crops in a new registration. Finance F
would have to end its effective registration against Grant A's
crops. Bank A could take a subordination agreement from Finance F
in case Finance F did not end its registration.
Effective registration
67. The Bill would apply the concept of 'effective registration', which
would describe the situation where a person has a financing statement
validly recorded on the PPS Register. This would be important for the
purposes of establishing, in the context of a priority dispute or a
grantor's insolvency, that the person is a secured party with a
security interest in personal property that is perfected by
registration.
68. In the absence of any disqualifying defects, a registration of a
financing statement would be effective from the 'registration time' of
the relevant financing statement until the earliest of the following
times: 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 search (for example,
where the Registrar has removed the data because it is frivolous or
vexatious) (clause 163). An effective registration could also be
brought to an end by the Registrar (clause 168) for failure to pay a
maintenance fee.
Defects in registrations
69. It is the secured party's responsibility to ensure that the
information registered on the PPS Register is accurate and complete.
A registration would be ineffective in certain circumstances (clause
164), for example where a registration contains a seriously misleading
defect in any data relating to the registration or another defect that
is specified in the Bill as rendering a registration ineffective.
A defect would include an irregularity, omission or error in the
registration (clause 10, defect).
70. This policy approach has been adopted to promote the reliability of
PPS Register data. This rule would not necessarily make a
registration defective on the basis of a simple mistake, such as a
typographical error in a free text field. Nor would it be likely to
capture errors of a more substantive kind that do not seriously
mislead a person. For example, the omission of the name of one
secured party in a consortium would not be seriously misleading
whereas an incomplete or inaccurate collateral description would be
likely to be misleading.
71. In order to establish that a defect is seriously misleading, it would
not be necessary to prove that a person was actually misled by the
registration (clause 164(2)). 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 litigation.
72. For the same reasons, the Bill would establish specific circumstances
in which a registration would be ineffective (clause 165):
. where the collateral is required under the regulations to be
described by a serial number in the PPS Register and no search of
the PPS Register by reference only to the serial number would
disclose the registration (this rule would apply to registrations
covering either consumer property or commercial property)
(clause 165(a));
. where the collateral is not required under the regulations to be
described by a serial number in the PPS Register and the
regulations require the grantor's details to be provided and no
search of the PPS Register by reference only to the grantor's
details would disclose the registration (this rule would apply to
commercial property and consumer property not required by the
regulations to be described by serial number (clause 153(1), table
item 2). (Clause 165(b));
. where the registered financing statement states that the security
interest is a purchase money security interest and the security
interest is not a purchase money interest in relation to the
collateral; (clause 165(c)) and
. a defect in the data prescribed by the regulations (clause 165(d).
Example
Finance A made a number of errors when entering data into the PPS
Register. For example, it registered: Grant A's motor vehicle
(consumer property) using an incorrect serial number (12344 instead
of 12345); and Grant B's details using the incorrect ACN. Either
of these errors is sufficient to render the registration
ineffective.
73. One exception to the general rule regarding registration defects
arises in relation to the description of particular collateral that
forms only part of the property subject to the registration.
Specifically, the registration of certain collateral would not be
ineffective for the sole reason that the registration of other
collateral in the same registration is ineffective (clause 164(3)).
This means that a registration may be partly effective and partly
ineffective.
Example
After Finance F registered Grant A's crop:wheat, it intended to add
Grant A's barley crop. In the free text description, Finance F
mistakenly entered the phrase 'and canola' (rather than 'and
barley'). The misdescription of the barley crop did not affect the
registration of the wheat crop, which continued to be effective.
The registration would have been effective in relation to any of
Grant A's canola.
Registration continues despite certain defects
74. Registrations would continue to be effective despite certain defects
arising over time (clause 166). This might occur, for example, where
the grantor's name becomes seriously misleading because of a name
change following marriage. In such cases, the registration would
remain effective until the earliest of:
. the end time for the registration as registered immediately before
the change;
. the end of the month that is 60 months after the change;
. the end of 5 business days after the day that the secured party
acquires the knowledge of the defect (clause 166(2)).
75. A secured party would have the knowledge required to correct a defect
if the secured party has actual knowledge of the defect, or would have
had such knowledge had they made the enquiries that an honest and
prudent person would have made (clause 297). Finance providers should
not be subject to unduly onerous requirements to update the PPS
Register, but could be expected to undertake periodic reviews of their
customer loans. Where such reviews reveal a change of circumstances,
registrations made by the secured party should be amended to include
updated information. This would ensure continuing priority in the
property and would assist other PPS Register users.
76. This rule is not intended to give secured parties the opportunity to
correct defects of their own creation, but to provide a grace period
for secured parties to correct registrations where events beyond their
control have led to a previously effective registration becoming
defective.
77. It is important to note that the ineffectiveness of a registration
does not affect the validity of the underlying security agreement, but
may result in a loss of priority where a competing interest is
registered on the PPS Register.
Example
When Gina James changed her name to Gina O'Grady, she forgot to
tell Bank A. When Bank A reviewed Gina's loans some eighteen
months later, it discovered Gina's name change and amended its
registration to correct the defect within 5 business days. Bank
A's registrations remained effective throughout the whole period.
Requirement to end the registration of certain property
78. To ensure that individuals are not prejudiced by outdated
registrations, a secured party would be under a statutory obligation
to omit collateral or end the effective registration of collateral
that is a consumer good or serial numbered property and the security
interest that is perfected by registration would become unperfected.
The secured party would have to end the registration within 5 business
days of the 'unperfection time' (clause 167) or extended time as
approved by a court (clause 293). Non-compliance would expose the
secured party to liability for statutory damages (clause 271) and
would entitle the grantor to seek to end the registration through
administrative or judicial processes. This would be important because
secured consumer credit transactions tend to be one-off dealings
between the parties where there is no reason for the secured party to
obtain the benefit of continuing priority status at the expense of the
consumer.
79. In all other cases, there would be no statutory obligation on the
secured party to end a registration. This is because commercial
financing is typically a medium to long term arrangement, often
involving a fluctuating line of credit rather than a lump sum loan,
and a series of security agreements rather than a one-time loan or
credit transaction. In many commercial arrangements, it would be
contrary to the interests and intentions of both parties to require
the secured party to end a registration every time there was a short
break in their financing relationship.
80. However, most financing arrangements would come to an end at some
point and negotiations could end after a registration is made and when
no security agreement is executed. Many consumers might also not want
to pursue damages claims or would have suffered no loss or
insufficient loss to warrant court action but would still want old
registrations ended. Therefore, the Bill would include an amendment
demand process aimed at ensuring that all parties can obtain
rectification of the PPS Register in certain circumstances (Part 5.6).
Failure to pay maintenance fee
81. An effective registration could be brought to an end by the Registrar
for the failure to pay a maintenance fee (clause 168(2)). This would
only apply where:
. the Minister has determined that a fee is payable to maintain the
effectiveness of the registration (clause 190(1));
. the Registrar has issued a written notice requiring the secured
party to pay the stated fee within 28 days after the notice is
given; and
. the secured party has failed to pay the fee stated in the notice,
or has failed to make arrangements (clause 190(3)) for the payment
of the fee within 28 days after the notice is given
(clause 168(1)).
82. Where the maintenance fee has not been paid, or arrangements have not
been made for its payment, the Registrar would be able to bring the
registration to an end by registering a financing change statement
amending the registration to end it (clause 168(2)).
83. As the registration of the financing change statement is a
registration event (clause 155), the Registrar would have to give a
verification statement to each secured party (clause 156) and the
secured party would have to in turn give notice of this registration
event to grantor(s) (clause 157).
Searching the register
84. The availability of reliable, low-cost, fast and accessible search
facilities would be a central feature of the PPS Register. This would
be important because prospective lenders might wish to know whether
particular property is subject to a current or prospective security
interest, while prospective purchasers may want to learn whether
property they are about to buy is subject to an encumbrance or other
restriction. In addition, secured parties may want to search the PPS
Register to verify the validity and history of their own
registrations, while grantors might like to monitor registrations made
against them.
85. As with all registrations and amendments, the PPS Register could be
accessible for search purposes by direct online access 24 hours a day,
7 days per week or by making a written application lodged with the
Registrar. This could be done through a web browser, through a
business to government interface, written application, SMS message, or
by Interactive Voice Response (IVR) (search by SMS and IVR would only
be available for searches for collateral described by a serial
number). A search result could provide real-time and historic point-
in-time information. A person could enlist the services of an agent
to perform the searches on her or his behalf. This would mean that
all people would be able to access the PPS Register for search and
other purposes even if they are located in remote areas.
86. For this purpose, the Bill would provide that a person could apply to
search the PPS Register for data and obtain a written search result in
relation to that data (clause 170(1)-(2)). Users would not have to be
registered to undertake a PPS Register search. However, the Registrar
would only be required to give a person access if:
. the search is authorised both in terms the correct search criteria
(clause 171) and a search reference to an individual grantor
(clause 172);
. the search application is in the approved form;
. a search fee is paid or an arrangement is made for the payment of
fees in accordance with a determination made by the Minister; and
. the search is not prohibited by the regulations (clause 170(3)).
Search criteria
87. The Bill would provide that a person may search the PPS Register by
reference to the following specified criteria:
. a grantor's details;
. a serial number by which collateral may (or must) be described;
. the time of the search;
. an earlier nominated time (point-in-time search), but only with the
consent of the Registrar; and
. any other criteria prescribed by the regulations. (Clause 171(1)).
Example
Bank A searches the PPS Register for dairy cattle registered
against Grant A, a company that is recorded as the grantor in
several PPS Register registrations. Bank A enters the Grant A's
ACN and indicates in the search request that he is searching for
livestock registrations. The search returns two registrations
against that ACN-one for dairy cattle against Finance A and another
for goats against Bank B.
88. To improve business efficiency and to minimise inconvenience, the PPS
Register search function would allow users to refine their searches
according to their needs. Therefore, while a user may search against
a particular grantor's name, they could refine their search to a
particular class of collateral or other descriptor. It is anticipated
that these descriptors might include information that identifies, for
example, whether the property is a purchase money security interest,
subject to a subordination agreement or is a current asset subject to
control.
89. For serial numbered goods (such as motor vehicles used for consumer
purposes), users would be able to search the PPS Register by the
serial number only. This is in line with the current practice on the
REVS and VRS registers which do not record grantor details.
90. The regulations would prescribe a number of search criteria. For
example, it would be possible to establish the PPS Register so that a
person would be able to search the PPS Register by reference to the
unique identifier of a registration. This would make searching more
efficient as searchers would not have to examine irrelevant
registrations.
Example
Bank B makes a registration and is given the unique identification
number for the registration. Bank A (and other authorised
searchers) will be able to enter this unique identification number
on the PPS Register to view the registration.
91. The Registrar would have to ensure that search results are provided in
response to a search application in accordance with any regulations
made for such purposes (clause 171(2)). This provision would enable
the regulations to determine rules for applying technological
solutions for working out search results. In particular, this would
allow the PPS Register to apply an exact match search method with a
correction table for frequently used substitutes (such as Ltd and
Limited).
Authorised search purposes
92. Given the public nature of the PPS Register, it is of primary concern
to protect the privacy of individuals' details recorded on the PPS
Register. To deter people from interfering with individual grantors'
privacy, the Bill would provide that the PPS Register could only be
searched by reference to an individual grantor's details for an
authorised purpose. These purposes are varied and would include a
broad spectrum of searches without compromising an individual's
privacy (clause 172(2)).
Example
Vendor A is selling a large commercial shopping complex to Buyer A.
Vendor A made it a condition of its leases that tenants - some of
whom are sole traders - not enter into any general security
interests. Buyer A would like to search the PPS Register to
establish whether the tenants have complied with the lease terms.
Buyer A will not be able to search the PPS Register for this
purpose. As Vendor A made it a condition of the lease agreement
that it could search the PPS Register for this purpose, Vendor A
will be able to undertake the searches and warrant compliance to
Buyer A.
93. In addition, a person who undertakes an authorised search could not
then use the data obtained as a result of searching the PPS Register,
unless the searcher has also obtained the data lawfully from another
source (clause 172(3)). This would therefore limit the extent to
which PPS Register search data could be used, including by information
brokers.
94. Each unauthorised search of the PPS Register or use of PPS Register
would attract a civil penalty. The maximum penalty would be 50
penalty units for an individual, and 250 penalty units for a body
corporate (clause 172(3)). The maximum penalty level is considered to
be sufficient in light of the potential impact unauthorised searches
and use of PPS Register data could have on persons whose information
is disclosed in a registration, the limited information about
individual persons contained on the PPS Register, and the ability of
grantors to recover for loss or damage in relation to such breaches.
95. A person claiming that there has been an unauthorised search or use of
PPS Register data bears the evidential burden of proof
(clause 172(4)). The Registrar would be empowered to investigate,
decline to investigate, or further investigate, a suspected
unauthorised search or use of data (clause 172(5)). The Registrar
would also be able to use technological evidence to detect
transactions on the PPS Register indicating that unauthorised searches
or use of data is occurring.
96. The duty not to conduct unauthorised searches would be an obligation
due to the grantor and the failure to observe that duty and resulting
in loss or damage would give rise to a claim for damages.
(Clause 172(3) and (6)).
Interference with privacy
97. To supplement the civil penalties which could apply to unauthorised
searches and unauthorised use of an individual's personal information,
the Bill would also provide that an unauthorised search or use of the
personal information (including unauthorised use by a third party)
would constitute an act or practice interfering with the privacy of an
individual for the purposes of s13 of the Privacy Act (clause 173(2)).
This 'interference with privacy' provision would cover any entity or
individual whether or not they were otherwise subject to the Privacy
Act.
98. An individual would be able to complain to the Privacy Commissioner
under section 36 of the Privacy Act if she or he believes that a
search of the PPS Register or use of the personal information
constitutes an interference with their privacy.
Example
Person A received a phone call from Finance F offering her cheap
finance because she had no registrations on the PPS Register.
Person A complained to Finance F that this was an unauthorised
search of the PPS Register and an interference with her privacy but
they could not resolve the matter. Person A complained to the
Privacy Commissioner. The Privacy Commissioner encouraged the
parties to conciliate the complaint and, as happens in the majority
of these matters, the parties reached an agreement, including that
Finance F would provide a public apology to Person A. Because
there was no formal determination by the Commissioner, no decision
could be published on the website but, as this particular matter
was considered to be of general interest to the public, the Privacy
Commissioner published some short case notes about the complaint
and its outcome without identifying any of the parties.
99. In addition the Registrar would be able to inform the Privacy
Commissioner of a suspected interference with privacy and the Privacy
Commissioner would be able to investigate the matter under its own
motion investigative powers (s40(2) of the Privacy Act).
Written search results and evidence
100. An important part of entering into secured transactions would be to
obtain accurate and reliable written search results. While a clear
PPS Register search result would provide prospective purchasers and
lenders with some certainty that the transaction they are about to
enter would not be undermined by other registered interests, it would
be another matter to prove the status of a registration at a later
time, particularly if a priority dispute were litigated.
101. To this end, a person who conducts an electronic search of the PPS
Register could elect to obtain a written search result documenting the
search (clause 170(2)). The written search result would be admissible
as evidence in a court or tribunal and, in the absence of evidence to
the contrary, proof of matters stated in the search result
(clause 174(1)). Where competing interests are in dispute, a party
would need a written search result covering two or more competing
registrations and provision would be made for this (clause 174(2)(c)).
Example
Finance F and Bank B both registered Grant A's present and after
acquired property on the same day. However, Finance F's
registration was the first to become available for search on the
PPS Register. A later written search result issued by the
Registrar provided prima facie written evidence that Finance F was
the first to register. This occurred because it was Bank B's
practice to make all of its registrations at the end each business
day, while Finance F made its registrations as they occurred
throughout the day.
102. A written search result would be provided in the appropriate form if
issued by the Registrar in the approved form or by Commonwealth, State
or Territory officers authorised by the Registrar or other prescribed
persons (clause 174(3)).
103. The Registrar could by legislative instrument determine data relating
to the secured party, grantor, or collateral, to be included on the
search result (clause 174(4) and (7)). In order to protect personal
information, it is envisaged that only necessary information would be
shown on the search result about grantors and secured parties.
104. For secured parties, this would be the identifier (ACN, ARSN etc) or
name recorded on the PPS Register in accordance with the regulations,
and the address for service nominated by the secured party group. The
address for service would need to be shown on the search result as
this would be used by interested parties to send notices to the
secured party.
Copies of financing statements
105. The Bill would also allow for secured parties to request, in the
approved form, a copy of their financing statement or verification
statement from the Registrar (clause 175). A request for a copy of
the financing statement or verification statement could incur a fee
(clause 190).
106. The Registrar would have a discretion to issue or refuse to issue a
copy of the financing statement or verification statement. This would
assist the Registrar to manage his/ her resources and to impose limits
on how many requests a secured party could make in relation to a
registration for a given period. If the Registrar refuses the
request, and the secured party disagrees with the refusal, the secured
party could apply to the Administrative Appeals Tribunal to review the
Registrar's decision.
107. A person could also request, in the approved form, a report of matters
relating to registered data relating to that person (clause 176(1)).
The Registrar would be able to determine the different matters that
the report would cover. A request for a report could incur a fee
(clause 190). These reports would be intended to assist secured
parties to manage their registrations.
Example
To assist secured parties renewing registrations nearing their end
date, the Registrar could determine, by written instrument, that a
report showing the number of registrations with an end date within
the next three months would be provided (clause 176(2)).
108. The Registrar would also have the discretionary power to provide a
report of matters related to registered data (clause 176(2)).
Amendment demands
109. Ideally secured parties and others with interests in the registered
personal property would be able to resolve any difficulties with the
registration between themselves. However, if a secured party is
unwilling or neglects to omit property from, or end, a registration, a
person with an interest in the collateral (other than a security
interest) could demand, in writing, that the registration be amended
(clause 178). This statutory demand would be known as an 'amendment
demand'. An interested person could demand:
. that the secured party omit the collateral from the registration
(clause 178(1), item 1); or
. end the effective registration of the collateral (clause 178(1),
item 2).
110. This process would be important as a mere registration could limit the
person's ability to deal with the registered property.
111. A secured party would not be able to require payment for compliance
with a demand for amendment (clause 178(3)). Consumers would be
protected against the imposition of hidden loan fees relating to
amendment demands.
112. Where a dispute remains unresolved, the person seeking amendment could
obtain a rectification of the registration through either an
administrative or judicial process.
113. A person with an interest in property described in a registration
would initially have to give a written demand to the secured party to
amend the registration (clause 178). The Electronic Transactions Act
1999 authorises the giving of a demand by electronic means.
Example
Person A became aware that Finance A had registered against all of
its present and after-acquired paintings rather than the particular
painting offered as security for the loan. Person A sends an email
to Finance A demanding that it amend the registration to apply only
to the particular painting.
114. Where the secured party fails to amend the PPS Register in line with
the demand by the end of 5 business days after the day of the demand
(or such later period as approved by the court (clause 293), the
person would generally have a choice of pursuing an administrative or
a judicial action to obtain an amendment of the PPS Register.
However, if the security agreement that provides for the security
interest in the collateral is a security trust instrument, only
judicial processes would be available (clause 179(1)-(3)).
Administrative process to demand amendment of a registration
115. The Bill would only allow secured parties, their agents and the
Registrar (including subject to court order) to amend a registration.
Secured parties could therefore expect that registrations could not be
amended inadvertently or with ill-intentions.
116. The administrative process would be available where a person gives a
written demand to a secured party to amend the registration and the
secured party fails to apply for the amendment before the end of 5
business days or a period as extended by the court (clause 179(1)).
However, the process would not be available where:
. the security agreement (if any) creating the security interest in
respect of the collateral is a security trust instrument; or
. proceedings are before a court in relation to an application
concerning the demand (clause 179(2)).
117. The exception in relation to security trust instruments would minimise
the scope for inadvertent, fraudulent or negligent changes to a
registration through a trustee's actions or omissions. In cases
involving security trust instruments, the beneficiaries of the trust
rather than the trustee would suffer the direct loss where a security
interest loses priority due to negligent or fraudulent action that
brings a registration to an end.
118. The administrative process would cease to be available where the
financing statement is subsequently amended in accordance with a
demand or court proceedings (clause 179(2)).
119. To commence the administrative process, a person would have to give a
written statement to the Registrar setting out the nature of their
demand and anything else prescribed by the regulations
(clause 180(3)). As soon as practical after the statement is given to
the Registrar, the Registrar would have to give an amendment notice to
the secured party unless the Registrar has already done so
(clause 180(4)). In this regard, the Registrar could give an
amendment notice to a secured party where the Registrar suspects on
reasonable grounds that the underlying obligation has ceased
(clause 180(2)).
120. An amendment notice would have to be in the approved form. If the
amendment notice is not in the approved form, the amendment notice
would have to:
. state the amendment demanded;
. invite the secured party to submit a response before the end of 5
business days after the day of the Registrar's notice or an
extended period approved by the Registrar;
. describe the 'show cause' procedure in the amendment notice (clause
181); and
. include a copy of the written statement of the person who demanded
the amendment (clause 180(5)).
121. The 'show cause' process would require the Registrar to amend a
registration in accordance with the demand described in the amendment
notice unless the Registrar suspects on reasonable grounds that the
amendment is not authorised under the Bill (clause 181(1) and (2)).
In deciding whether to amend or refuse to amend the registration, the
Registrar would have to consider the response (if any) of the secured
party as well as any other relevant information (clause 181(4)).
Example
Finance A failed to comply with Grant A's request to amend the
registration over Grant A's painting. Grant A applied to the
Registrar setting out the terms of his demand and other required
information. The Registrar gave Finance A written notice of Grant
A's statement and invited Finance A to show cause why the
registration should not be amended.
122. The provision of false or misleading information in any response to
the Registrar's invitation could be an offence against Part 7.4 of the
Criminal Code. Similarly, providing false or misleading information
in an application to the Registrar to initiate the amendment demand
process could be an offence against Part 7.4 of the Criminal Code.
123. A secured party would have to be notified of the Registrar's decision
by verification statement under clause 156)(assuming the Registrar
decides to amend the registration). The Registrar's decision would be
reviewable by the AAT.
Judicial process to obtain amendment of a registration
124. The Bill would provide a judicial process for interested persons
affected by a PPS Register registration to obtain an amendment to a
registration that concerns their interests. These parties would not
be required to undergo the administrative process prior to applying to
a court.
125. The judicial process would be available where a written demand for
amendment is made and the secured party does not comply with the
demand within 5 business days after being given notice of the demand
or a period extended by a court under clause 293. The judicial
process would be available in all cases, including where a security
trust instrument is involved.
126. The secured party or the person who gave the demand (usually the
grantor) would be able to apply to court for an order relating to the
registration (clause 182(1)). Any person with an interest (including
a security interest) in the collateral would have the right to appear
before the court (clause 182(3)). The Registrar would also have the
right to appear in proceedings (clause 218), which would be especially
important if other relevant administrative processes relevant were
underway.
127. Where a party brings an application to court in relation to an
amendment demand, the court could make orders to amend the
registration (clause 182(4)). If the court did not consider the
demand was authorised, the court could make orders to:
. restrain the Registrar from amending the registration;
. restrain the person who gave the amendment demand from making such
further amendment demands as specified by the court;
. restrain the Registrar from giving the secured party amendment
notices in relation to such further amendment demands as specified
by the court;
. any other orders that the court thinks fit (clause 182(4)).
128. The Registrar would have to comply with a court order as soon as
practicable after receiving it (clause 182(5)). The Register could
also determine that data removed from the PPS Register would not be
made available for searching by reference to a time prior to the
removal or after the removal (clause 182(6)).
Removal of data and correction of registration errors
129. Consistent with the Registrar's role of establishing and maintaining
the PPS Register, the Registrar would be empowered to: amend
registrations; correct errors and omissions made by the Registrar and
registry staff; remove, restore and archive data and implement court
orders as authorised.
130. The Registrar would be empowered to remove data (including an entire
registration) from the PPS Register where:
. the application to register the data is frivolous or vexatious, the
data is offensive, or the retention of the data in the PPS register
is contrary to the public interest;
. the registration of the data is prohibited by the regulations;
. the application to register the data was not made in the approved
form;
. the removal is required urgently in the public interest or for
reasons prescribed by the regulations (clause 184).
Example
Credit A applied for a registration against Person B in which the
collateral was described as 'Bartholomew'. As Credit A could not
take a security interest in a person, the registration would be
frivolous or vexatious and the Registrar could remove it.
131. The Registrar's power to remove data which is contrary to the public
interest would extend to a broad range of data, for example, data that
if retained on the PPS Register, would otherwise be unlawful. The
Registrar would also have the power to urgently remove data in the
public interest.
132. The Registrar would also be empowered to remove data if the data is
prohibited by the regulations for being defamatory or otherwise
unlawful.
133. Where data is removed, the Registrar would have to give a verification
statement to each secured party (clause 156). The verification
statement would serve as notice of the removal of the data. If the
secured party believes that the Registrar's decision is wrong, they
could apply to the AAT to review the Registrar's decision (clause
191).
134. In most cases, where a financing change statement is registered, the
historical data about the registration prior to the amendment would be
available for search if a user undertakes a point-in-time search or a
current search after the removal of the data. Where data has been
removed by the Registrar, the Registrar could decide that the data
would not be included in any point-in-time search result. If the data
has been removed urgently in the public interest or for reasons
prescribed by the regulations (clause 184(1)(e)(ii)), the Registrar
would be required not to make such data available for search. Data
removed in this way would be treated as if it had never been included
in the PPS Register.
135. The Registrar would also have the capacity to register a financing
change statement to remove old data from the PPS Register or data that
has been ineffective for 7 years or more after its registered end date
(clause 185).
136. The Registrar would also have the discretionary power to restore data
(including an entire registration) to the PPS Register where that data
was incorrectly removed (clause 186(1)). The Registrar would need to
exercise his discretionary power to protect the rights of third
parties. If data is restored to the PPS Register, it would be taken
to have never been removed from the PPS Register (clause 186(2)).
137. To ensure that removed data is not lost, the Registrar would be able
to keep a record of any removed data (clause 187). This would allow
for old and removed records to be archived and prevent the PPS
Register from becoming cluttered with old and ineffective
registrations. Parties would be able to gain access to archived
records under the Freedom of Information Act.
138. The Registrar would be empowered to amend registrations to correct any
errors or omissions made by the Registrar (clause 188).
Fees, administrative review and annual reports
Registration and search fees
139. The Minister would be able, by legislative instrument, to determine
fees for the purposes of the Bill (clause 190(1)-(2)). Fees could be
payable on a 'pay as you go' basis (through credit card or direct
debit arrangements) or by arrangement with the Registrar (in
accordance with arrangements determined by the Minister under clause
190(3)-(4).
Example
Finance A projected that it would undertake about 1,000
transactions on the PPS Register each month. To overcome the
inefficiency of multiple small 'as you go' transactions, Finance A
enters an arrangement with the Registrar of Personal Property
Securities for the invoicing and payment of fees on a monthly
basis.
140. Any fees imposed by the Bill would be set on a cost recovery basis
(clause 190(5)) and could not amount to a taxation (section 55 of the
Commonwealth Constitution).
141. The amount of any fee, other than a fee to maintain a registration,
would be a debt due to the Commonwealth, and could be recovered by the
Commonwealth by application to court (clause 190(6)). The fee to
maintain a registration would not be a debt to the Commonwealth
because the sanction imposed for non-payment would be the ending of
the effective registration of the property.
Review of decisions
142. A person could apply to the AAT for review of any of the following
decisions by the Registrar:
. refusing to register a financing statement (clause 150(1);
. refusing to register a financing change statement (clause 150(2));
. amending the PPS Register to end the effect of a registration
(clause 150(2));
. refusing to give a person access to the PPS Register to search for
data, (clause 170);
. refusing to give a person a copy of a registered financing
statement or a verification statement (clause 175);
. refusing to give a person a report (clause 176(1));
. registering, or refusing to register, an amendment demand
(clause 181(1));
. removing data from the PPS Register (clause 184(1)(a)-(c));
. not making data removed from the PPS Register available for
searching on the PPS Register (clause 178(2), clause 181(5)) or
clause 184(2)(a));
. restoring incorrectly removed data to the PPS Register (clause
186);
. correcting an error or omission made by the Registrar (clause 188);
and
. removing migrated data from the PPS Register (clause 334(2)).
143. Under the Administrative Appeals Tribunal Act 1975, a party to
Administrative Appeals Tribunal (AAT) proceedings may appeal a
decision by the tribunal to the Federal Court of Australia on a
question of law.
144. The Registrar would have to prepare an annual report at the end of
each financial year for tabling by the Minister in the Parliament.
The report would have to address the operation of the Bill and provide
details of each occasion on which access to the Register was refused
or otherwise suspended during the relevant year (clause 147(5)).
(Clause 192(2)).
Registrar of Personal Property Securities
145. The offices of the Registrar of Personal Property Securities and the
Deputy Registrar are established under Part 5.9.
146. The clauses in this Part provide for:
. an office of the Registrar and Deputy Registrar and for the
appointment of the Registrar and the Deputy Registrar (clause 194
and clause 200);
. the functions and powers of the Registrar and Deputy Registrar
(clause 195 and clause 201);
. acting Registrar appointments to be made in certain circumstances
(clause 196);
. the resignation of the Registrar and Deputy Registrar (clause 198
and clause 202); and
. the termination of the appointment of the Registrar and Deputy
Registrar (clause 199 and clause 203).
147. The Registrar would be able to delegate his or her powers to persons
who may, or may not, be engaged under the Public Service Act 1999
(clause 197). The ability to delegate to non-public servants would be
necessary to outsource functions under the Bill to private employees,
such as those engaged in a contact centre. A delegate could be
required to exercise their powers under the direction or supervision
of the Registrar, Deputy Registrar or a person engaged under the
Public Service Act. The powers conferred on the Registrar under the
Bill fall into three broad classes:
. the powers required to operate the PPS Register. It is expected
that the Registrar would ordinarily exercise these powers through
automated systems without delegation to any person but the
Registrar would need this power of delegation for situations
requiring manual processes. The volume of transactions processed
by the PPS Register would make it impractical for the Registrar to
exercise all of his or her powers personally;
. the power to undertake investigations or commence or intervene in
legal proceedings (clauses 173(5), 218 and 219). It is expected
that the Registrar would ordinarily exercise these powers
personally but if the powers were delegated, it is expected that
the delegation would be in relation to a particular matter and
under the supervision of the Registrar. This power of
delegation would give the Registrar flexibility in the
administration of the PPS Register and the ability to retain powers
over significant matters and to delegate powers over less
significant matters;
. the power to make a range of routine decisions, such as in relation
to applications to the Registrar for reports (clause 176), the
amendment demand process (clause 180(2)) and the approval of
arrangements for the payment of fees (clause 190(4)). It is
expected that these matters would ordinarily be exercised by junior
officers working at a telephone contact centre, under the direct
supervision of more senior officers. The volume and nature of
these functions would make it inappropriate for them to be
exercised by SES officers.
Chapter 6 - Judicial proceedings
Judicial proceedings generally
1. The Bill would confer jurisdiction on various Australian courts over
'PPS matters', that is matters arising under the Bill or otherwise
arising in relation to security agreements or security interests
(clause 206(1)). The conferred jurisdiction would not include matters
over which the Federal Court or the Federal Magistrates Court has
jurisdiction under the Administrative Decisions (Judicial Review) Act
1977. (Clause 206(1)).
2. Chapter 6 would establish specific requirements and procedures for
transferring PPS matters between courts, including cross-
jurisdictional transfers. The Bill would therefore exclude the
operation of the Jurisdiction of Courts (Cross-vesting) Act 1987 and
section 39B of the Judiciary Act 1903 (clause 206(2)) but not other
provisions of the Judiciary Act (clause 206(3)).
Conferral of jurisdiction
3. The Bill would confer jurisdiction over PPS matters on the following
courts, subject to any limits on a particular court's jurisdiction
(clause 207):
. the Federal Court;
. the Family Court of Australia;
. the Federal Magistrates Court;
. a superior court of a State or Territory; and
. a lower court of a State or Territory.
4. A lower court of a State or Territory is a court of that State or
Territory that is not a superior court (ie, a Supreme Court) (clause
211(3)). Jurisdiction would be conferred on such courts to facilitate
access to court for parties wishing to enforce their rights regardless
of the value of the security interests.
5. The Bill would not permit cross-jurisdictional appeals (eg from a
state court to a federal court) unless expressly provided for by law
(clause 208).
6. The Bill would require that courts and court officers with
jurisdiction over PPS matters assist each other (clause 209).
Transfers between courts
7. PPS matters would be able to be transferred between courts where
appropriate or in the interests of justice (clause 212(1)). For a
matter to be transferred:
. a PPS matter would need to be pending or before a court;
. jurisdiction would need to be conferred on the receiving court for
either the whole proceeding or an application in the proceeding;
and
. the remedies sought would need to be within the power of the
receiving court. (Clause 210).
8. The Bill would not provide for the transfer of PPS matters between the
Federal or Family Court and the Federal Magistrates Court (clause
210). Transfers between these courts are already provided for under
existing legislation.
9. The Bill would enable cross-jurisdictional transfers from lower courts
through the superior courts (clause 211). For example, a Local Court
could transfer a matter to its Supreme Court with a recommendation
that the matter be transferred to the Supreme Court of another
jurisdiction. On receipt of the transfer, the Supreme Court of the
other jurisdiction could transfer the matter to a lower court in its
jurisdiction.
10. A court could transfer a PPS matter on the application of a party or
on its own initiative (clause 213) In deciding whether to make a
transfer, the court would need to take into account a number of
considerations, including but not limited to the following:
. the location or place of business of the parties;
. where the relevant events took place;
. the desirability that related hearings be heard in the same State
or Territory;
. any recommendation from a lower court that the matter be
transferred; and
. the suitability of having the matter determined by the receiving
court (clause 212(2)).
11. The receiving court would proceed with a transferred matter as if the
matter had been instituted in that court (clause 214). When dealing
with a transferred PPS matter, a court would be required to apply the
rules of evidence and procedures applied in any superior court, which
the court considers appropriate in the circumstances (clause 215).
Where a PPS matter is transferred, barristers or solicitors entitled
to practise in the transferring court would have the same entitlements
to practice in the receiving court (clause 216). In addition, appeals
would not be allowed in relation to the transfer of proceedings
(clause 211) and the rules of evidence and procedure (clause 215).
(Clause 217).
Registrar's role in judicial proceedings
12. The PPS Registrar would be able to intervene in a proceeding on behalf
of the Commonwealth (clause 218). If the PPS Registrar considered it
to be in the public interest for a person to seek to recover damages
resulting from a PPS matter, the Registrar would be able to commence
and pursue proceedings in the person's name (clause 219). Where the
person is not a constitutional corporation, this would require the
person's written consent (clause 219(3)).
Civil Penalty Proceedings
13. The Bill would include a civil penalty regime for the contravention of
certain provisions ('civil penalty provisions'). These provisions are
aimed at protecting the privacy of individuals. A wrongdoer who
contravened a civil penalty provision could be ordered to pay the
Commonwealth a monetary penalty. A civil penalty is imposed through
the courts and the standard is a civil, rather than a criminal,
standard. Part 6.3 of the Bill would set out the framework for civil
penalty proceedings.
Application
14. A civil penalty provision would be identified as such by the relevant
provision or by another provision (clause 221).
Obtaining an order for a civil penalty
15. The PPS Registrar would initiate civil penalty proceedings on behalf
of the Commonwealth. The Registrar would need to apply for an order
from the Federal Court within six years of the alleged contravention
(clause 222(1)). If two or more civil penalty provisions were
contravened by the same conduct, proceedings could be instituted under
any one or more of the provisions but a person would be liable for
only one penalty in respect of the same conduct (clause 222(4)).
16. In making its decision, the court would need to be satisfied that the
wrongdoer had contravened a civil penalty provision and that the
contravention was serious (clause 222(2)). When determining the
monetary penalty, the court would have regard to the nature and extent
of the contravention and of the resultant loss or damage. The court
would also consider the circumstances of the contravention and whether
the person had previously been found to engage in similar conduct.
(Clause 222(3)).
17. For each contravention, the court could order the wrongdoer to pay the
pecuniary penalty that the court considers appropriate. However, the
amount payable could not be more than the amount set for contravening
the relevant provision (clause 222(2)).
18. Civil penalties could be applied to persons involved in the acts of
others who contravened the civil penalty provisions. For example, a
person who aids, abets, counsels or procures a contravention of a
civil penalty provision would be liable to incur a civil penalty
(clause 224).
19. If the Federal Court orders a person to pay a monetary penalty, this
would have the same effect as a court judgment and would be
enforceable by the Commonwealth as such (clause 225).
20. The contravention of a civil penalty provision would not constitute an
offence (clause 223).
Civil penalty proceedings and criminal proceedings
21. Where conduct could attract both civil penalty and criminal
proceedings, the Bill provides priority for criminal proceedings.
22. If the relevant conduct results in a criminal conviction, the Federal
Court could not make an order for contravening a civil penalty
provision (clause 226). Where criminal proceedings are commenced
against a person for conduct which is the subject of civil penalty
proceedings, the civil penalty proceedings would be stayed (clause
227(1)). In the event the person was not convicted of the offence,
the civil proceedings would be resumed, but otherwise they would be
dismissed (clause 227(2)).
23. Criminal proceedings would be able to be instituted against a person
despite that person having been found to have contravened a civil
penalty provision in respect of substantially the same conduct (clause
228)).
24. Other than in cases raising allegations of giving false evidence in
civil penalty proceedings, the evidence produced in civil proceedings
would be inadmissible in criminal proceedings if the conduct alleged
to constitute the offence is substantially similar (clause 229).
Enforceable undertakings relating to contraventions of civil penalty
provisions
25. If the PPS Registrar considers a person to have contravened a civil
penalty provision, the Registrar could accept a written undertaking to
pay an amount to the Commonwealth within a certain period (clause
230). The breach of such an undertaking would enable the Registrar to
apply to the Federal Court for an order that the person comply with
the undertaking (clause 231).
Chapter 7 - Operation of Australian and other laws
Australian laws and those of other jurisdictions
1. The parties to a security agreement would need to know whether the
security interest will be governed by the law of a place in Australia
or another place. They would require certainty and predictability as
to the law applicable to the validity, perfection, effects of
perfection and non-perfection and enforcement of the security
interest. The conflict-of-laws rules would meet the reasonable
expectations of all interested parties to a security agreement.
2. The rules in Part 7.2 would apply to proceedings in an Australian
court (clause 234).
3. As there are connecting factors which must be met before Australian
law is able to determine which law governs a security agreement, this
Part should be read together with clause 6 (Connection with
Australia).
4. This Part is based on international conflict-of-laws rules, and in
particular on similar provisions in the New Zealand and Saskatchewan
PPS Acts and the UNCITRAL [Legislative Guide on Secured Transactions].
5. Clause 234 (Scope of this Part) would use the term 'validity' instead
of 'attachment'. This concept of validity relates to whether a
security interest is effective and enforceable between the parties,
and not whether the security agreement itself is valid as a contract
between the parties.
6. The provisions would include general rules (clause 234-237) and
specific rules about security interests in goods (clause 238),
intangible property (clause 239), financial property (clause 240) and
proceeds (clause 241).
7. The starting principle is that a security interest in goods would be
governed by the law of the location in which the goods are located,
that security interests in an intangible would be governed by the law
of the location in which the grantor is located and that a security
interest in financial property would be governed by the law of the
location in which the grantor is located. These principles would be
modified in particular situations.
Contractual obligations
8. Nothing in this Part of the Bill would affect the law that governs
contractual obligations in a security agreement (clause 234). The
contractual rights and obligations of the parties to a security
agreement would be subject to the law chosen by the parties and as
evidenced by the terms of the contract. The Bill would deal only with
the law governing property rights created by a security agreement in
proceedings before an Australian court (clause 234).
9. The choice of law available to parties to a security agreement would
be consistent with the Convention on the Law Applicable to Contractual
Obligations (Rome Convention)(Articles 3 and 4). Article 3 of the
Rome Convention provides that parties have freedom of choice as to
what law should govern contractual obligations and Article 4 provides
that where a law has not been chosen, contractual obligations would be
governed by the law of the country to which the contract is most
closely connected. Under the Bill, the parties to a security
agreement would be able to determine the appropriate law applicable to
their personal obligations under the agreement
Location
10. The location of personal property, whether in Australia or another
jurisdiction, would generally be the location where the personal
property is situated (clause 235).
11. Australia would mean the Commonwealth of Australia and include Norfolk
Island and any other external Territories prescribed by the
Regulations (clause 7).
12. There would be exceptions for some specific kinds of personal
property, for example, investment instruments not evidenced by
certificates would be located in the jurisdiction which governs the
transfer of the investment instrument, while the location of
negotiable instruments evidenced by electronic records would be the
jurisdiction which governs the negotiable instrument. The location of
chattel paper would also be the jurisdiction which governs the chattel
paper (clause 235).
13. A person's location would be determined either by a body corporate's
place of incorporation, the jurisdiction of the body politic or an
individual's principal place of residence.
Agreement to apply Australian law
14. The law of the Commonwealth would be the substantive law governing
property rights created by a security agreement when the agreement
between the parties expressly states the law of a place in Australia
is to apply, and the grantor is an Australian entity (clause 237).
The parties would be able to agree that Australian law governs a
security interest only when the grantor is an Australian entity at the
time the security interest attaches to the collateral
(clause 237(1)(a)). For practical purposes, when the grantor is an
Australia entity, this clause would apply only when the collateral is
goods or a securities entitlement (because the security interest would
generally be governed by Australian law when the collateral is an
intangible) (clause 239) or financial property (clause 240).
15. An Australian company with foreign investments would be able to enter
into security agreements which expressly apply Australian law to the
company's security interests, no matter where the goods, intangible
property or financial property is located, when the security interest
attaches.
16. The Bill would not apply when the grantor is not an Australian entity
and the collateral is goods located outside Australia, as there would
not be a sufficient connection with Australia (clause 6(1)). For this
reason, the Bill does not include provisions about the law that
governs these security interests - including parties being able to
agree that Australian law applies to the security agreement. Whether
a non-Australian entity would be able to agree that Australian law
governs a security interest granted by it in goods located outside
Australia would be a matter for the law of the location of the grantor
or the goods.
17. There would be some exceptions to the express agreement provision in
relation to specific intangible property. A security agreement would
be unable to specify that Australian law would apply over security
interests in an account, an assignment of an account or chattel paper,
intellectual property or an intellectual property licence. Security
interests in this type of intangible property would be governed by the
law of the location of the grantor.
Example
Company B incorporated in Country Z exports goods to Australia and
a number of other countries and has receivables owed to it from
customers in these countries. Company A incorporated in Australia
takes a security interest in an accounts receivable of Company B
for receivables owed by Australian customers and payable in
Australia. As the collateral is an account the governing law is
that of the jurisdiction of the grantor at the time the security
interest attaches. In this instance the law of Country Z would
apply to the security interest.
18. This approach would be consistent with the United Nations Convention
on the Assignment of Receivables in International Trade (UN Assignment
Convention). Articles 22 and 30 of the UN Assignment Convention
establish the general rule that it is the law of the jurisdiction
where the grantor is located which determines the governing law for
the assignment of receivables. This rule would be required so that
the law applicable to receivables is fixed to one location and secured
parties would not have to ascertain which of a potential multitude of
laws applies in a particular case.
19. This Part would cover the attachment, perfection and effect of
perfection or non-perfection of security interests but other
Commonwealth laws could provide governing laws for security interests
(clause 236).
Goods
20. The main rule applying to goods would be that of the jurisdiction
where the property is located when the security interest attaches to
the goods, under that law.
Example
Person A, located in Australia, takes a security interest in a
painting owned by Person F, located in Country F. The painting is
located in Country F. As the painting is a good located in
Country F, the validity, perfection and effect of perfection or non-
perfection of the security interest will be governed by the law of
Country F,
However, the parties could expressly agree that the law of
Australia would apply to the security interest in the painting
despite the painting beings located outside Australia (clause 237).
21. The rule applying to goods would not distinguish between possessory
and non-possessory security interests.
Goods that are moved between jurisdictions
22. Secured parties could have security interests in personal property
which is capable of being moved from jurisdiction to jurisdiction. If
the main rule were to apply, it would be incumbent on secured parties
to monitor the secured goods throughout transit and to enforce the
security interests according to the law of the jurisdiction in which
the goods were located when the security interest attached (this could
be difficult to determine when the security agreement is enforced at a
later time).
23. The Bill would therefore include an exception to the main rule for
goods that are about to be moved. The law of the jurisdiction to
which the goods are moved would apply when the secured party has a
reasonable belief that the goods will be moved to the jurisdiction
(clause 238(2)).
Example
Person A, located in Australia, takes a security interest in a
painting owned by Person F, located in Country F. The painting is
located in Country F. When the security interest attached to the
painting, Person A held a reasonable belief that the painting would
be moved from Country F to Australia. The governing law for goods
that are moved is that of the jurisdiction to which they are moved,
provided the secured party has a reasonable belief that the goods
will be moved to that jurisdiction. Therefore, the law of Australia
would govern the security interest in the painting.
Also, because Person A is located in Australia, the parties could
have expressly agreed that the law of Australia would apply to the
security interest from the outset, regardless of the location of
the painting at any particular time (clause 237).
Example
Person F, located in Country F, takes a security interest in a
painting owned by Person A, located in Australia. The painting is
located in Australia. When the security interest attached to the
painting, Person F held a reasonable belief that the painting would
be moved from Australia to Country F. In proceedings in an
Australian court, the law of Country F would govern the security
interest in the painting (so long as the painting is located in
Australia) (clause 6(1)(a) and clause 238(3).
Goods that are normally moved between jurisdictions -
24. Strict adherence to the main rule would create a similar problem for
secured parties who take security interests in goods which are
normally moved between jurisdictions. Shipping containers are an
example of this type of property
25. Therefore, the Bill would provide an exception to the main rule for
commercial goods that are normally moved between jurisdictions. The
exception would apply the law of the jurisdiction (including the
conflict of law rules) in which the grantor is located when the
security interests attaches to the goods under the law of that
jurisdiction (clause 238(3)). This means that secured parties would
not have to know the exact location of the goods at any particular
point in time.
Example
Person A, located in Australia, grants a security interest in
shipping containers to Bank A, located in Australia. At any given
time the shipping containers are located in various countries, or
at sea. As Person A is located in Australia, the law of Australia
would govern security interests in the container, unless otherwise
expressly agreed by the parties (clause 238(3) and clause 237).
Example
Person F, located in Country F, grants a security interest in
shipping containers to Foreign bank, located in Country F. At any
given time, the shipping containers are located in various
countries, or at sea. In proceedings in an Australian court, as
Person F is located in Country F, the law of Country F would govern
security interests in the container, unless otherwise expressly
agreed by the parties (clause 238(3) and clause 237).
26. This exception to the main rule would take into consideration the
requirement of sufficient connection to the governing law and the
reasonable expectation of the parties, that for mobile commercial
property, the location of the goods at any particular time should not
dictate what law would apply to the security interests.
27. A notable difference in this provision would be that the law of the
debtor's jurisdiction includes a reference to their conflict of laws
rule. Similar inclusions are contained in both the New Zealand and
Saskatchewan PPS Acts. The inclusion of conflict of laws invokes the
doctrine of renvoi, which essentially means 'reference back'. Put
simply, the law of the forum is required to look not only at the
domestic law of the debtor's location, but also the choice of law
provisions in the grantor's location.
Example
Person F, located in Country F, grants a security interest in
shipping containers to Bank A, located in Australia. Bank A
commences enforcement action in an Australian court against Person
F in relation to shipping containers located in Australia. The
Australian court is required to apply the choice of laws rules in
Country F. The Australian court is able to resolve the dispute in
accordance with Australian law, provided the conflict of law rules
in Country F apply the law of Australia to the shipping containers
(clause 238(3)).
Example
Person F, located in Country F, grants a security interest in
shipping containers to Bank A, located in Australia. Bank A
commences enforcement action in an Australian court against Person
F in relation to shipping containers located in Australia. The
choice of laws in Country F includes the doctrine of renvoi, which
creates a circular situation where the laws of each jurisdiction
keep referring back to one another. In this instance, the
Australian court would apply the law of Country F and resolve the
issue as if a court of Country F had exercised its jurisdiction
(clause 238(3)).
Intangible property
28. The main governing law rule for security interests in intangible
property would be that the governing law would be the law of the
jurisdiction where the grantor is located when the security interest
attaches under that law (clause 239(1)).
29. This provision would provide certainty for the parties because:
. it would not always be clear where an intangible is located; and
. there would be a single law applicable to the intangible property.
30. The Bill would take into consideration a change in the location of the
grantor over the life of the security interest and provide that
perfection and the effect of perfection or non-perfection of a
security interest in intangible property would be governed by the law
in which the grantor is located at a particular time (clause 239(2)).
Example
Exporter A, located in Australia, grants a security interest over a
chose in action it has against persons located in Country D and
Country E. The security interests would be governed by the law of
Australia, unless the parties agree otherwise (clause 239(2)).
Example
Person A, located in Australia, grants a security interest over
accounts due to it by persons located in Country D and Country E.
The security interests would be governed by the law of Australia
(clause 239(2)). Person A would not be able to contract that the
security interest be governed by the law of another country (clause
237(2)(a)).
Intellectual property
31. The governing law for security interests in intellectual property or
an intellectual property licence would be the law of the jurisdiction
under which the intellectual property or licence was granted (clause
239(3)).
Example
Grant A, who is located in Australia, is the author and owner of
the intellectual property in a best-selling book. In order to
finance her next book, Grant A borrows money from Publisher F,
which is located in Country F. Grant A grants Publisher F a
security interest in the copyright in Grant A's next book, whether
located in Australia or Country F. The security interest would not
extend to the copyright in other places. The security interest
would be governed by the law of Australia to the extent that the
collateral is Australian copyright and the law of Country F to the
extent that the collateral is Country F copyright.
32. A different rule would apply to intellectual property and intellectual
property licences because the same law would need to govern both the
intellectual property and the associated security interest. This
would be particularly important when title to the intellectual
property is based on registration in an intellectual property
register, such as for patents and trade marks.
ADI accounts
33. A security interest in an ADI account would ordinarily be governed by
the law of the jurisdiction that governs the ADI account (clause
239(4)). The parties to the security interest and the ADI could agree
to the law of another jurisdiction applying to the security interest
in the ADI account, provided the choice of law is not manifestly
contrary to public policy (clause 239(5)).
Financial property
34. The governing law for the validity of a security interest in financial
property would ordinarily be that of the jurisdiction where the
grantor is located when the security interest attaches, under that
law, to the property (clause 240(1)). The location of the grantor
would ordinarily also apply for determining perfection and the effect
of perfection or non-perfection of a security interest in financial
property (clause 240(4)).
Example
Company F, located in Country F, grants a security interest to Bank
B, located in Country B, in financial property located in
Australia. Bank B does not have possession or control of the
financial property. In proceedings in an Australian court, the
validity, perfection and the effect of perfection or non-perfection
of a security interest in the financial property would be governed
by the law of Country F (ie the law of the location of the
grantor).
35. However, the law of Australia would govern the validity of a security
interest in certain kinds of financial property when the security
interest attaches under the law of a place in Australia and at the
time the security interest attaches, the property is both located in
Australia and the secured party has possession or control of the
property. This rule would apply to investment instruments, negotiable
instruments not evidenced by certificates and rights evidenced by
letters of credit that state that the letters of credit must be
presented on claiming payment or requiring the performance of an
obligation (clause 240(3)).
Example
Company F, located in Country F, grants a security interest to Bank
B, located in Country B, in an investment instrument located in
Australia. The security interest has attached under the law of New
South Wales. Bank B has possession or control of the investment
instrument. The validity of Bank B's security interest in the
shares would be governed by the law of Australia.
36. Australian law would also apply to the perfection of a security
interest in financial property in certain situations. Perfection and
the effect of perfection or non-perfection would be governed by the
law of Australia if at that time the financial property is located in
Australia and the secured party has possession or control of the
property (clause 240(5)).
Example
Company F, located in Country F, grants a security interest to Bank
B, located in Country B, in an investment instrument located in
Australia. The security interest has attached under the law of New
South Wales. At the time of attachment, Bank B did not have
possession or control of the investment instrument, however, Bank B
later obtained possession or control of the investment instrument.
The validity of Bank B's security interest in the shares would be
governed by the law of Country F (the location of the grantor, as
there was no possession or control at attachment). But the
perfection and the effect of perfection or non-perfection would be
governed by the law of Australia (as the secured party has
possession or control of the investment instrument that is located
in Australia).
Non-negotiable documents of title
37. A security interest in a non-negotiable document of title would be
governed by the law of the jurisdiction in which the goods covered by
the document of title are located when the security interest attaches
under that law (clause 240(6)).
Negotiable instruments
38. A security interest in an uncertificated negotiable instrument would
be governed by the law of the jurisdiction that governs the negotiable
instrument.
Proceeds
39. The governing law in relation to a security interest in proceeds would
be the law of the location of the security interest in the original
collateral.
40. There would be an exception where the proceeds are an account (to
facilitate transfers of accounts) (clause 241).
Constitutional Operation
41. Pursuant to section 51(xxxvii) of the Constitution, the Commonwealth
Parliament may legislate with respect to matters referred to it by the
State parliaments. The Bill would be supported by suitable references
of State legislative powers. Such references would remove any need to
'read down' the Act by reference to existing Commonwealth
constitutional powers and would ensure that the new legislative
framework is comprehensive in its national coverage.
42. The Commonwealth and the States and Territories have agreed to the
terms of an inter-governmental agreement underpinning the referral of
legislative power from the States to the Commonwealth to enable the
Commonwealth to enact the Bill. The Council of Australian Governments
signed the inter-governmental agreement on 2 October 2008.
43. The Bill would operate in a referring State to the extent permitted by
the constitutional powers of the Commonwealth and the reference of
State legislative powers.
44. The Bill would still operate in a State regardless of whether that
State has referred the powers necessary to enable the Commonwealth
Parliament to enact the Bill. However, the Bill would operate in a
non-referring State only to the extent that the Bill's operation could
be supported by the Commonwealth Parliament's legislative powers under
section 51 of the Constitution (other than section 51 (xxxvii)).
45. In a non-referring State, the Bill would govern security interests in
personal property where:
. the grantor of the security interest is a person with respect to
whom the Commonwealth can legislate, for example a bankrupt or an
insolvent (clause 247);
. the security interest arose in the course of activities with
respect to which the Commonwealth can legislate: for example,
activities undertaken by a constitutional corporation (clause 248);
or
. the security interest is in collateral over which the Commonwealth
has legislative powers, for example, a bill of exchange or
promissory note (clause 249).
46. The Bill would also provide that the PPS Register would operate in a
non-referring State (clause 250).
47. The Bill would operate in a Territory as a law of the Commonwealth, to
the extent that it can in accordance with the Commonwealth
Parliament's legislative powers under sections 122 and 51 of the
Constitution (other than section 51(xxxvii)) (clause 243).
48. The Bill would operate outside Australia to the extent that it can
under section 51(xxix) of the Constitution (the external affairs
power) or any of the other legislative powers that the Commonwealth
Parliament has under section 51 of the Constitution (other than
section 51(xxxvii)) (clause 243(7)).
49. A State would not be a referring State unless the State refers the
necessary legislative power before the registration commencement time.
If a State were to refer the legislative power after the registration
commencement time, a further Bill would be required to include that
State as a referring State (clause 244).
50. The Bill would reflect the matters referred by state parliaments
(clause 245). Initially, the Commonwealth would rely on the referral
of legislative power from the states in order to make the Bill. The
reference of power would also extend to the making of express
amendments to the Bill. An express amendment would include direct
amendments of the Bill but would exclude the enactment of a provision
in a different Act that would have a significant affect on the Bill.
51. A referring State would stop being a referring State if that State
were to terminate the provisions of the referral legislation that
conferred the power to make the Bill initially and the provisions that
permitted subsequent amendments (clause 244).
Relationship between Australian Laws
Concurrent Operation
52. The Bill would establish the relationship between the Bill and other
laws. If the Bill were to operate in relation to a security interest,
other laws would not affect the validity of the interest, except where
the Bill provides otherwise. The Bill would otherwise operate not to
exclude or limit the concurrent operation of other applicable laws of
the Commonwealth, a State or Territory or a rule of law or equity.
The Bill would prevail to the extent of any direct inconsistency over
a law of a State or a Territory or a rule of law or equity. However,
the Bill would recognise that some laws of a State or a Territory and
rules of law or equity could operate concurrently with the Bill
(clause 254).
53. The Bill would provide certainty about the concurrent operation of the
Bill with other Commonwealth, State and Territory laws (clause 255)
and this would be consistent with the intergovernmental agreement on
PPS reform, which provides (clause 3.2.4) that, where there is direct
inconsistency between State or Territory legislation and the PPS Act,
or subordinate legislation made under the Act, that State or Territory
legislation would prevail over the Act or subordinate legislation
where:
. subordinate legislation made under the Act provides that the State
or Territory legislation prevails; or
. the State or Territory legislation expressly derogates from the Act
or subordinate legislation .
54. Inconsistencies between the Bill and other Commonwealth, State or
Territory legislation would be able to be resolved by a regulation
replacing a provision of the Bill or modifying its operation (clause
255). This would provide a mechanism to resolve inconsistencies that
would otherwise affect the regulatory responsibilities of participants
in the national PPS scheme. A similar mechanism is included in the
Corporations Act and the Corporations Agreement 2002.
55. This regulation making power could not be used to modify the
definitions of 'personal property' (clause 26) or 'licence' (clause
255(3) so far as those definitions exclude certain rights,
entitlements and authorities granted under Commonwealth, State or
Territory law and which are declared under that law not to be personal
property under the PPS Act. This restriction would be in accordance
with the terms of the PPS inter-governmental agreement between the
Commonwealth and the States and Territories.
56. The Bill would ensure that the Commonwealth, by enacting the Bill,
could not give preference to one State (or part thereof) over another
State (or part thereof) in relation to trade, commerce or revenue (as
this would contravene section 99 of the Commonwealth Constitution)
(clause 260)). This would be achieved by allowing a court to 'read-
down' any provision in the Bill that would give such a preference, so
that it would not operate to the extent that it gives the preference.
When other laws prevail
57. The Bill would allow for the Payment Systems and Netting Act 1998, the
Cheques Act 1986, and the Bill of Exchange Act 1997 to prevail over
the PPS Act to the extent of any inconsistency (clause 256).
58. The Bill would set out restrictions on the extent to which a security
agreement would be effective according to its terms under clause 18(1)
(clause 18). A security agreement would be subject to any rule of law
or equity or any law of the Commonwealth, a State or a Territory. An
Act that prevented the granting of security interests in certain kinds
of personal property would continue to be effective, for example, the
prohibition in the Gaming Machines Act 2001 (NSW) on granting certain
kinds of security interests in approved gaming machines (section 74)
or the prohibition in the Consumer Credit Code on mortgages that
charges all the property of a mortgagor (section 40(1)).
59. The contractual relationship between the parties would continue to be
regulated by the general contract rules dealing with matters such as
the formation, validity, interpretation and enforceability of
contracts.
60. The Bill would allow a law of the Commonwealth, a State or a Territory
or a rule of law or equity to prevail over the Bill to the extent of
an inconsistency, where that law prohibits or limits a person
creating, acquiring or dealing with collateral or a security interest
in collateral (clause 254). This would include where the relevant law
restricts the right of a person to hold, transfer or assign a security
interest or where the law would impose further limitations or
obligations in relation to the enforcement of a security interest in
personal property. The regulation-making power in clause 258(4) could
disapply the subordination so that the Bill would prevail. This could
be necessary, for example, where a State or Territory law purporting
to limit the ability of a person to deal with a security interest in
personal property would unintentionally undermine the operation of the
national scheme.
61. This rule would be subject to the provisions in the Bill which
determine when other laws do not prevail (clause 258(5).
62. The Bill would allow a referring State or a Territory to declare that
a matter be excluded from the application of the whole or part of the
Bill (clause 259). The declaration could also specify the extent to
which the matter is excluded. Regulations made under the Bill could
override any such declaration. These provisions would be in
accordance with the terms of the PPS inter-governmental agreement
between the Commonwealth and the States and Territories.
63. While the Bill would allow State and Territory laws consistent with
the Bill to operate concurrently with the Bill, the Bill would ensure
that such laws would not prevail over the Bill in certain
circumstances.
When other laws do not prevail
64. A security agreement or an assignment of a security agreement would
not be ineffective under the Bill merely because of a failure to
comply with certain laws of a State or a Territory. Specifically,
where a State or Territory law:
. require or enable a person to register a security interest or an
assignment - a failure to comply with the registration requirements
under the relevant State or Territory law would not affect the
validity, priority or enforcement or otherwise limit the effect of
the security agreement, security interest (clause 261) or the
assignment (clause 262);
. relates to a security agreement or an assignment of a security
interest and requires the security agreement to be in a particular
form or be executed in a particular way - a failure to comply with
the formal requirements under the relevant State or Territory law
would not affect the validity, priority or enforcement or otherwise
limit the effect of the security agreement, the security interest
or the assignment (clause 263). This would only apply to State and
Territory laws prescribed by the regulations. It would be possible
to prescribe State and Territory laws that impose different formal
requirements in different States and Territories, to facilitate
consistent national formal requirements;
. affects the operation of the rules under the Bill that determine
when a security interest attaches to personal property (clause 264)
and how a security interest is perfected - the operation of the
relevant State or Territory law would be excluded to the extent
that it affects the specified provisions of the Bill.
65. These provisions would ensure national consistency in relation to
registration, assignment, the formal requirements for security
agreements and the rules relating to attachment and perfection.
Chapter 8 - Miscellaneous
Vesting of certain unperfected security interests
1. The Bill would specify the circumstances in which an unperfected
security interest in property would vest in the grantor (clauses 267-
269).
2. These provisions would operate in conjunction with other provisions in
the Corporations Act and the Bankruptcy Act 1966 which specify the
circumstances in which a security interest is void as against a
trustee, liquidator or administrator. For example, the Corporations
Act provides that certain unregistered charges are void as against the
liquidator (s266-267).
3. Unlike the provisions in the Bankruptcy Act and Corporations Act, the
provisions in the Bill would also apply to transactions where the
secured party owns the collateral, for example, under a lease or hire
purchase arrangement.
4. The Bill would provide that a security interest would vest in the
grantor if the security interest were unperfected when:
. a company or body corporate is wound up;
. an administrator is appointed under the Corporations Act (or that
Act as applied by a State or Territory law);
. a company or a body corporate executes a deed of company
arrangement;
. a sequestration order is made under the Bankruptcy Act;
. the person becomes a bankrupt under the Bankruptcy Act (clause
267).
5. This outcome would not be new to Australian law. The High Court in
Associated Alloys v ACN 001 452 106 (Pty) Ltd (in liquidation) [2000]
HCA 25 and in General Motors Acceptance Corporation Australia v
Southbank Traders (Pty) Ltd [2007] HCA 19, held that a supplier could
lose their security interest as a result of failing to register the
interest.
6. The following kinds of security interests would be exempt from this
rule:
. the interest of a senior creditor under a turnover trust (clause
268(2));
. a short term PPS lease (a lease of goods described by serial number
for a term of 90 days and less than one year (clause 268(1).
7. While these transactions would survive the grantor's insolvency, they
would remain subject to the relevant priority rules in the Bill.
8. Turnover trusts are a feature of a large number of commercial
documents and are commonly included in guarantees provided in
commercial financing. It would therefore be onerous to require
financiers to register turnover trusts. The Bill would strike a
balance by allowing unregistered turnover trusts to survive the
grantor's insolvency but would make the senior creditor's unregistered
interest under the trust subordinate to the interest of another
registered security interest.
9. Similarly, it would be onerous to require the registration of short
term PPS leases to protect them from a grantor's insolvency. As with
turnover trusts, the Bill would strike a balance by allowing
unperfected short term PPS leases to survive the grantor's insolvency
but to remain subject to the priority rules of the Bill.
10. The Bill would also provide that a person who acquired the personal
property from the secured party or the receiver would acquire good
title provided they gave new value and had no knowledge that the
winding up of the company , administration or the execution of a deed
of company arrangement had commenced (clause 267(3)).
11. A secured party whose security interest vests in the grantor would be
entitled to compensation which would entitle them to prove in the
grantor's insolvency (clause 269).
Exercise and discharge of rights, duties and obligations
Entitlement to damage for breach of duties or obligations
12. The Bill would provide a right to recover damages to any person to
whom a duty or obligation is owed under the Bill or who reasonably
relies on the performance of a duty or obligation and who suffers loss
or damage as a result of a failure to satisfy the duty or obligation
(clause 271(1)). This right to recover damages would not affect any
other liability arising under a law of the Commonwealth, State or
Territory or the general law (clause 271(2)).
13. The right to recover damages could arise in the following situations:
. a breach of the duty to obtain market value when enforcing a
security agreement (clause 131);
. a breach of the duty not to damage property when removing an
accession in enforcing a security agreement (clause 92); or
. a failure to amend a registration (clause 180).
14. Damages would not be recoverable from the following persons provided
that they had acted honestly under a power conferred on them by the
Bill:
. the Commonwealth;
. the Registrar, Deputy Registrar, a delegate, member of staff or
person acting as a member of staff or authorised to perform any of
the Registrar's functions;
. a Commonwealth Minister; or
. a State or Territory Minister performing functions under an
agreement to proceed as if personal property is land (clause 118).
(Clause 272).
15. A person who is affected by an error made by any of these people would
have recourse under the Commonwealth's Compensation for Detriment
caused by Defective Administration Scheme.
16. The operation of the Bill in relation to rights, obligations, duties
and remedies would remain unaffected where the secured party has title
to the collateral, rather than the grantor (clause 273).
Provision of information by secured parties
17. The Bill would allow:
. a grantor of a security interest;
. a person with another security interest in the collateral;
. an execution creditor with an interest in the collateral;
. an authorised representative of any of the above (clause 275(9);
to request the following information from a secured party:
. a copy of the security agreement;
. the amount of the obligation and the terms of payment;
. an approval or correction of an itemised list of secured property
at a day not more than 20 days after the request;
. an approval or confirmation of the amount of the obligation and
terms of payment at a day not more than 20 days after the request.
(Clause 275).
18. The person providing the information could later be estopped from
denying the authenticity of the copy of the agreement they provide or
the accuracy of the information they provide (clause 283).
19. The secured party would be required to provide the information within
ten days of receiving the request (clause 277(1)) unless:
. the secured party obtains a court exemption from providing the
information (clause 278);
. the secured party obtains an extension of time for providing the
information (clause 278);
. the secured party has already provided the information under
another legal obligation (clause 275(5));
. the secured party has a prior confidentiality agreement with the
debtor, the debtor is not in default and the information has not
been requested by the grantor or its auditor (clause 275(7));
. the response would contravene a law of the Commonwealth, State or
Territory or the general law (clause 275(6));
. the response would breach a duty of confidence (clause 275(6)); or
. the fees requested for responding to the request have not been paid
(clause 279(5)).
20. Where the secured party fails to respond to a request for information
within the specified time or provides an incomplete or incorrect
response, the person requesting the information would be able to apply
to court for an order ordering the secured party to respond to the
request within a specified period (clause 280).
21. A grantor would be entitled to receive this information free of charge
once every six months or otherwise if there has been a material change
in the information (clause 281(3)). In other circumstances, secured
parties would be able to recover the reasonable marginal costs of
responding to requests for information (clause 279). Where a person
believes that the requested fee exceeds the reasonable marginal costs
of providing the information or that the information has not already
been provided in the previous six months or that there has been a
material change in the information, the person would be able to apply
to court for an order imposing a fee and stating a time within which
it is to be paid (clause 281).
22. When a person fails to comply with a court order made in respect of a
failure to provide the information or in relation to the reasonable
fees of providing the information, the court would have the power to
make an order extinguishing the security interest and directing the
Registrar to register a financing statement reflecting this. The
court could make any other orders it thinks necessary to obtain
compliance (clause 282).
23. If a person who is no longer a secured party receives a request for
information, they would be required to provide the requesting party
with the name and address of their successor (if known) (clause 276).
Notices and Timing
24. The provisions on notices and timing would not apply to proceedings
before a court or tribunal or to procedures specified in the parties'
security agreement (clause 285).
25. A notice or other document required to be given under the Bill would
need to be given:
. in writing (clause 286); and
. at the address specified in the registration by pre-paid post, fax
or email (a registration would specify only one address for service
even where there is more than one secured party) (clause 153).
26. A registration could include an identifier so notices could be
directed to the appropriate person within large organisations (clause
153). The Registrar would be able to specify the manner in which
these identifiers would need to be included in notices and a notice
which fails to include the identifier in the specified manner would be
ineffective (clause 289).
27. A notice to be served on a deceased person could be served on the
deceased's legal representative or another person specified by the
court (clause 290). The court would also have the power to make an
order directing a notice or document to be given in a particular way
or dispensing with any of the notice requirements (clause 291).
Timing requirements
28. Provided a Court is satisfied that it would be just and equitable and
that there would be no prejudice to third parties, it could extend the
number of business days within which a person would be required to
comply with the following obligations:
. perfection of purchase money security interests in collateral other
than inventory (clauses 62(3)) and 63);
. the perfection of non-purchase money security interests in accounts
(clause 64(1));
. the enforcement of security interests in liquid assets:
o the payment of amounts owing to secured parties (clause 120(3));
o the provision of notice to higher priority parties (clause 121(2))
and the grantor (clause121(5));
o compliance with notice from higher priority parties (clause
127(9));
o the provision of notice of disposal of collateral (clause 130(2));
o the provision of statements of account (clause 132(2));
o the provision of notice of retention of collateral (clause 135(2));
o the provision of proof of interests (clause 138(2));
. the registration of financing statements:
o the amendment of a registration after acquiring knowledge of defect
(clause 166(2));
o an application to end an effective registration in consumer
property or serial numbered goods (clause 167(2));
o an application for amendment of an registration after change demand
(clause 182(2)); or
o the provision of information relating to security interests
(clause 275(1)).
29. A notice given under the Act would not be invalid as a result of a
formal defect or an irregularity (clause 292)).
Onus of Proof and knowledge
Onus of Proof
30. In any proceedings in an Australian court, the onus of proving that a
security interest has attached to personal property, is perfected or
has been taken free of a security interest, would lie with the person
making those assertions.
31. Furthermore, because knowledge would generally lie with the person
making the assertion, the onus would lie with the person making the
following assertions to prove them: (clause 296):
. a security interest is attached;
. a security interest is perfected;
. personal property is acquired free of security interests (except in
relation to taking domestic or household property free of security
interests (clause 44(2));
. a person acquires property but had no knowledge that a security
interest had also been granted by a body corporate and the winding
up, administration or execution of a deed of company arrangement of
the company or body corporate had commenced (clause 267(3));
. the fee requested to provide information regarding a security
interest does or does not exceed the reasonable marginal costs of
providing the information (clause 279(2));
. information regarding a security interest has been or has not been
provided to a grantor within the previous 6 months (clause 281(3));
. there has been or has not been a material change in the information
regarding the security interest provided to a grantor since the
information was last provided (clause 281(3)); or
. the secured party paid the market value when it purchased the
collateral (clause 129(3)).
32. A number of the provisions in the Bill (particularly those in Part
2.5) would allow a person to acquire property free of a security
interest provided certain conditions are satisfied. The Bill provides
that the person would not take the property free of the security
interest if:
. the purchaser had actual or constructive knowledge that the
acquisition constituted a breach of the security agreement that
provides for a security interest in the personal property;
. the purchaser had actual or constructive knowledge of a security
interest in the personal property; or
. value was not given by the transferee for the interest acquired.
33. The onus of proving that the security interest is extinguished, would
be on the person claiming that they have taken the property free of
the security interest (clause 296).
Knowledge
34. The Bill would refer to 'actual knowledge' and 'constructive
knowledge'.
35. The expression 'constructive knowledge' would be used where a person
might gain an advantage by deliberately not making inquiries when a
reasonable person would make inquiries. Constructive knowledge would
therefore include the knowledge that a person would have if they had
made the inquiries that would have been made by an honest and prudent
person in their situation or by an honest and prudent person with
their actual knowledge and in their situation (clause 297).
36. Where it is necessary to prove that a body corporate, or person other
than a body corporate, has actual or constructive knowledge of a
specific circumstance, it would be sufficient to prove that:
. a director, employee or agent, of the body corporate or person, who
has responsibility for the circumstance had that knowledge; or
. the circumstance was communicated to a director, employee or agent,
of the body corporate or person and reasonable care required them
to bring the circumstances to the attention of the person
responsible for the circumstance (clause 298).
37. The Bill would contain presumptions that where personal property is
transferred between members of the same household, related companies
or a company and a company director or officer of that company
(clause 299(1)), that they:
. had actual or constructive knowledge of the security interest in
the collateral;
. had actual or constructive knowledge that the transaction was a
breach of the security agreement; and
. did not provide value for the interest.
38. These presumptions could be disproved if the parties involved could
prove otherwise beyond a reasonable doubt (clause 299(2)).
39. This standard of proof is used in the Security Interests in Goods Act
2005 (NSW)(s7(6)) and the Chattel Securities Act 1987 (Vic)(s8).
These Acts deal with security interests and would be replaced by the
PPS Bill.
40. The Commonwealth, the States and Territories have all agreed that the
higher standard be retained to provide finance companies with their
existing level of protection against fraudulent transactions. Because
the civil standard of proof would make it harder to set aside
fraudulent transactions, it would not give lenders sufficient
incentive to finance ordinary consumers without additional checks.
The higher criminal standard of proof would better protect financiers
holding security interests in personal property and deter fraudulent
transactions which are a clear risk where related entities trade with
one another.
Forms and Regulations
41. The Registrar would be able to approve forms required for the Bill
(clause 302).
42. The Governor-General would be able to make regulations for the
purposes of the Bill (clause 303).
chapter 9 - Transitional Provisions
1. The Bill would provide for the transition from current law governing
the creation, enforcement and priorities of security interests in
personal property. Part of this transition would require the
migration of data from existing State, Territory and Commonwealth
registers recording security interests in personal property to the PPS
Register.
2. The Bill would apply to security interests existing before the Bill
comes into force subject to the transitional provisions. The
transitional provisions would generally allow security holders to
maintain their existing priority and preserve their rights for 24
months from the time the PPS Register commences operation.
3. In order to preserve existing rights and priorities while ensuring a
smooth transition to PPS law, certain parts of the Bill, for example,
the provisions relating to enforcement would only apply to new
security interests created once the Bill comes into force and not to
existing security interests.
Constitutional framework
4. Under clause 51(xxxi) of the Constitution, the Commonwealth can only
make laws acquiring property on just terms, including the provision of
just terms compensation. Therefore the Bill cannot confer a higher
priority on a security interest relative to another security interest
in the same property, than it had prior to the Bill.
5. It is only where priority is to be determined following a bankruptcy
or insolvency, or where an existing secured party has assented to the
Bill by voluntarily registering their interest on the PPS Register,
that the Commonwealth can alter the existing priorities between
competing interests without invoking the just terms requirement. The
transitional provisions therefore contain special rules for
determining priority in these situations. Apart from insolvency and
consent, the Bill would ensure that pre-existing interests maintain
the priority they would have had prior to the Bill.
6. The transitional provisions would preserve for 24 months (the
temporary perfection period) existing rights in cases of bankruptcy or
insolvency, or assent by a security interest holder whose interest is
not migrated to the PPS Register (non-migrated security interest).
7. However, the transitional provisions would also encourage non-migrated
security interest holders to register their interests under the new
regime. The Bill would provide that should the grantor become
insolvent or bankrupt after the expiry of the temporary perfection
period, unless that security interest has been otherwise perfected, it
would become an unperfected security interest under the Bill and would
have a lower priority than security interests in the same property
that had been perfected.
8. The transitional provisions would apply to existing security interests
that had been migrated to the PPS Register without requiring the
secured party to indicate their assent to the Bill by voluntarily re-
registering or amending the registration. However, in circumstances
where this would change the priority of a migrated security interest,
resulting in an acquisition of property otherwise than on just terms,
the transitional provisions would protect the migrated security
interest by ensuring that the secured party retains the priority they
would have had if the PPS Act had not been enacted (clause 325).
Key concepts
9. The migration time would be the start of the month that is 25 months
after Royal Assent to the Bill or an earlier time determined by the
Minister (clause 306(1)) although it is likely that the Minister would
determine an earlier migration time.
10. The registration commencement time would also be determined by the
Minister and would need to be at least 28 days after the day
determined as the migration time. If the Minister does not make a
determination for the migration time, the registration commencement
time would be the start of the first day of the month that is 26
months after the month in which the Bill is given Royal Assent (clause
306))
Example
If the Bill were given Royal Assent on 10 December 2020, the
migration time would be the start of 1 January 2023 and the
registration commencement time would be the start of 1 February
2023. If the Minister determined that the migration time would
instead be 1 March 2021, the Minister may also determine an earlier
time for the registration commencement time to occur but that time
must be after 28 March 2021.
11. A security agreement would be a transitional security agreement if the
agreement was in force immediately before the registration
commencement time and the Bill would have applied to the security
interest had the Bill been in force before the registration
commencement time (clause 307).
12. A 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 (clause 308).
13. Whether the relevant State is a referring State would affect whether
the Bill would apply to a particular security interest arising after
the registration commencement time and the extent to which it would
have applied before the registration commencement time. In general
terms, if a State does not refer its constitutional powers to the
Commonwealth, the Bill would apply only to the extent of the
Commonwealth's constitutional power (that is, generally to all secured
lending over personal property except as between solvent individuals
where the Commonwealth lacks constitutional power).
14. A security agreement would be able to 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.
15. Where there is no formal agreement providing for ongoing supplies,
generally each supply would be considered to be a separate contract or
security agreement. Supplies made after the registration commencement
time in this type of situation would each be made under a new security
agreement. Security interests made after the registration
commencement time would not benefit from the protection provided in
the transitional provisions. The secured party to this kind of
arrangement would need to register two financing statements; one to
secure transitional security interests and a further registration to
secure security interests arising after the registration commencement
time.
Example
Each Friday, Supplier A supplies Vendor A, a newsagent, with
greeting cards. Supplier A and Vendor A signed a contract on 1
February 2007, prior to the first supply, which noted that Mary
does not own the cards until she pays for them. The contract
provided for the ongoing supply of cards. Three weeks after the
Bill commences, a liquidator is appointed to Vendor A's business.
Supplier A has not registered the collateral on the PPS Register.
The contract between Supplier A and Vendor A is a security
agreement that provides for future security interests in the cards
supplied. The supply each week represents a new security interest
under the security agreement. Supplier A will have priority over
the liquidator's interest for all supplies made to Mary as the
ongoing supplies are transitional security interests provided for
by the original transitional security agreement. The transitional
security interests therefore receive temporary perfection for 24
months following the registration commencement time.
Example
Facts as above except that the weekly parcels have always come with
a prominent notice on the invoice to the effect that Mary does not
own the cards until she pays for them. Vendor A has never signed a
contract with Supplier A. Three weeks after the Bill commences, a
liquidator is appointed to Mary's Vendor A. Supplier A has not yet
registered against Vendor A.
The informal nature of the business relationship between Supplier A
and Vendor A means that a security agreement, and a security
interest under that agreement, arises with each supply. There is
no security agreement that covers the ongoing supplies. As a
result, any supplies made after the registration commencement time
will also be new security agreements and Supplier A would not be
able to access the protection provided under the transitional
provisions for the security interests arising under those
agreements. Supplier A would have priority over the liquidator
only in relation to supplies made before the registration
commencement time. Fred will lose priority in relation to goods
supplied after the registration commencement time as his interest
in these goods has not been perfected.
Example
Facts as above except that prior to the commencement of the Bill,
Supplier A decides that, in order to protect supplies made after
the commencement of the Bill, he will require Vendor A to enter
into a written contract providing for the ongoing supply of cards.
The parties enter into the agreement two weeks before the
registration commencement time. Three weeks after the Bill
commences, a liquidator is appointed to Vendor A's business.
Supplier A has not yet registered against Vendor A.
Supplier A has protected his security interests by having Vendor A
enter into a written agreement that provides for the ongoing
supplies. The agreement would ensure that supplies made after the
registration commencement time are protected by the 24 month
temporary perfection period. Supplier A would have priority over
the liquidator's interest for all supplies made to Vendor A.
Initial Application of this Act
16. The application provisions would establish the security interests and
security agreements to which the Bill would apply as follows:
. security agreements made at or after the registration commencement
time;
. security interests arising at or after the registration
commencement time;
. transitional security agreements and transitional security
interests;
. interests in personal property (other than security interests)
arising after the registration commencement time;
. personal property, if data in relation to the property is given to
the Registrar as part of the migration process; and
. prescribed personal property. (Clause 310).
Exclusions from initial application
17. Several parts of the Bill would apply only in relation to interests
that arise after the registration commencement time and would,
therefore, not apply as follows:
. transitional security interests would only be enforceable against
third parties if they would have been enforceable before the
registration commencement time (clause 311);
. priority between security interests and declared statutory
interests would not be determined by the priority provisions of the
Bill unless the interests were created under a law of the
Commonwealth, State or Territory after the registration
commencement time (clause 312);
. security interests in intellectual property licences that are
created before the registration commencement time would not be
binding on successors-in-title (clause 313);
. the enforcement provisions would not apply to security agreements
made before the registration commencement time (clause 314);
. application for the registration of a financing statement would not
be able to be made, nor the registration made, before the
registration commencement time (clause 315);
. the governing laws provisions of the Bill would not apply to
security interests that arise before the registration commencement
time (clause 316);
. a non-constitutional security interest that becomes a
constitutional security interest would not be covered by the Bill
unless the security interest arose at or after the registration
commencement time (clause 317(1));
. charges, fixed charges and floating charges created by security
agreements made prior to the registration commencement time, would
not be covered by the Bill (clause 318).
Transitional provisions
18. In order to encourage secured parties to register their interests, the
Bill would limit the period for which holders of transitional security
interests (including both migrated security interests and non-migrated
security interests) could maintain their priority over newly
registered interests.
Migrated security interests and deemed registration
19. Migrated security interests would be interests that are currently
registered on 'transitional registers' and the registered data in
relation to the interests would be migrated to the PPS Register
(clause 332). These interests would be deemed to be registered on the
PPS Register from immediately before the registration commencement
time until the earlier of:
. the time when the interest stops being continuously perfected under
the Bill;
. the end-time of the registration (clause 323).
20. By being deemed to be registered from immediately before the
registration commencement time, migrated security interests would have
priority over new security interests registered at or after the
registration commencement time.
Example
Bank B has a security interest in a car owned by Grant A. This
security interest was registered on the NSW Register of Encumbered
Vehicles and is migrated across to the PPS Register as a migrated
security interest. Bank B's security interest is taken to be
perfected from immediately before the registration commencement
time until the time the registration would have ended in accordance
with the law under which the Register of Encumbered Vehicles was
maintained.
Example
Facts as above except, after the security interest is migrated to
the PPS Register, Bank B amends the registration to extend the end
time. On 6 August 2011, which is before the end date of both the
REVS registration and the amended PPS registration, Grant A gives
Bank B an amendment demand stating that the car does not secure the
loan to Grant A. Bank B does not respond. On 12 August 2011, the
Registrar removes Bank B's registration from the PPS Register.
On 20 August 2011, a liquidator is appointed to Grant A's company.
By amending its registration, Bank B assented to the terms of the
PPS Bill. Bank B's security interest stopped being continuously
perfected on 12 August -its unregistered security interest would be
void against the liquidator.
21. The process of migrating security interests from transitional
registers would not require security interest-holders to re-register
their existing registered security interests. However, if the
application of the transitional priority scheme would result in an
acquisition of property other than on just terms, then the priority
would be determined as if the Bill had not been enacted (clause 325).
Non-migrated security interests and temporary perfection
22. A non-migrated security interest would be any transitional security
interest which is not a migrated security interest. Apart from
certain interests excluded by the regulations, non-migrated security
interests would be temporarily perfected by the Bill for a period
starting immediately before the registration commencement time and
ending at the end of the earlier of the following times:
. the time when the security interest ceased to be continuously
perfected otherwise than by temporary perfection; or
. the end of the month that is 24 months after the registration
commencement time (clause 322).
23. Temporary perfection is a form of perfection (clause 21) the purpose
of which is to protect the holder of the non-migrated security
interest and give them the opportunity to perfect their security
interest. Temporary perfection would give secured parties holding non-
migrated security interests priority over parties who register their
security interest at or after the registration commencement time.
Example
Grant A is a fruit packer. On 30 August 2009 Finance A lends Grant
A $5 000 and takes a security interest in Grant A's truck. There
is no register on which Finance A can register its interest in the
truck. On 1 May 2010 the new PPS Register commences. On 14 May
2010 Finance B lends Grant A $10000 and takes a security interest
in the same truck. Finance B registers its interest on the PPS
Register on the same day. On 15 July 2010 Grant A becomes
insolvent. The priority between Finance A and Finance B comes to
be determined. Finance A's interest is a transitional security
interest and would therefore be temporarily perfected by the Bill,
for a period starting immediately before 1 May 2010, up until
31 May 2012. Finance A's interest in Grant A's truck would
therefore have priority over Finance B's interest, even though
Finance A's interest is unregistered.
Example
Facts as above, except on 24 May 2010 Finance A registers its
interest on the PPS Register and as a result agrees to be subject
to the terms of the Bill. On 1 June 2010 Finance A inadvertently
removes Finance A's registration from the PPS Register. On 15 July
2010 Grant A becomes insolvent. Finance A's continuous perfection
ended, and the security interest became unperfected, on the date
the registration became ineffective. Finance A would not have the
benefit of temporary perfection until the end of the 24 month
period. Finance B would have priority as a registered security
interest over Finance A's now unregistered security interest.
Priority protection for certain transitional security interests
24. The transitional provisions would set up a transitional priority
scheme which would apply:
. in bankruptcy or insolvency; or
. in a priority dispute between migrated security interests; or
. where holders of non-migrated security interests have assented to
the Bill by registering their interests (clause 320).
25. A transitional security interest would be taken to have attached to
the collateral immediately before the registration commencement time
(clause 321).
Interests prescribed in the regulations excluded from temporary perfection
26. The 24 month temporary perfection period applying to non-migrated
security interests would not apply to interests prescribed in the
regulations (clause 320(5)). The regulations could provide that the
temporary perfection period would only be available for transitional
security interests that were:
. not registrable on any register prior to the registration
commencement time; or
. registrable on a register but registration did not confer priority
under the legislation.
27. Therefore, security interests that were registrable on a transitional
register that determined priority but were not registered, would not
be temporarily perfected and the priority of these interests would be
determined as if the Bill had not been enacted (in the absence of
rules establishing priority, priority would be determined by the
common law rule that an earlier security interest would have priority
over a later security interest).
Example
On 3 March 2009, Finance F lends Grant A $20,000 and takes a
security interest in Grant A's boat as collateral. The parties and
the boat are located in Queensland. The boat is old and does not
have a valid Hull Identification Number (HIN). The security
interest is registrable on the Queensland Bills of Sale Register
but Finance F registers its interest on the Queensland Register of
Encumbered Vehicles (REVS) despite the State legislation requiring
that all registrations of interests in boats include the HIN. The
registration is therefore not legally valid under the legislation.
Finance F' registration is not migrated to the PPS Register. The
security interest would also not be temporarily perfected as it was
registrable on the Queensland Bills of Sale Register. If Finance F
registers on the PPS Register after the registration commencement
time, it would have a transitional security interest perfected only
from the date of registration. The invalid registration on the
Queensland Register would not provide any protection for the
security interest.
Example
Facts as above, except that on 19 September 2009, Grant A grants a
further security interest in his boat to Finance S in the sum of
$10,000. Finance S registers its interest in Grant A's boat on the
Queensland Bills of Sale Register. The registration is migrated to
the PPS Register and is deemed to be registered on the PPS Register
from immediately before the registration commencement time.
Two months after the registration commencement time, Grant A
becomes insolvent. These provisions of the Bill would not apply to
Finance F's interest because it was registrable on a register that
determines priority by registration. Priority would be determined
as if the Bill had not been enacted, under the Bills of Sale and
Other Instruments Act 1955 (Qld), which determines that a
registered interest has priority over an unregistered interest.
Finance S's registered interest would have priority over Finance
F's unregistered interest despite the fact that Finance F's
interest was created first.
28. The regulations could also provide that if the legislation governing
the transitional register provides a time in which secured parties
must register their interest, any interests created within that time
period before the registration commencement time would obtain
temporary perfection. However, if the time in which the interest had
to be registered under the governing legislation has lapsed at the
registration commencement time, the interest would not obtain
temporary perfection and would only obtain perfection from the time of
registration on the PPS Register.
29. If the legislation governing the transitional register does not
determine a time by which an interest should be registered, the
interest would have perfection from the time it is registered on the
PPS Register.
Example
The Corporations Act requires that where a company creates a
charge, the company must ensure that it lodges a notice in the
prescribed form setting out particulars of the charge within 45
days of the charge being created. Thirty days before the
registration commencement time, Company A establishes a charge over
Company B's assets in relation to a debt owed by Company B. Five
days after the registration commencement time, Company B becomes
insolvent. Company A's security interest would have temporary
perfection from immediately before the registration commencement
time and would have priority over the liquidator.
Example
In January 2008, Bank D lends Grant A $4,000 and takes a security
interest in Grant A's car as collateral for the loan. Bank D
registers its security interest on the NSW Register of Encumbered
Vehicles. Five days before the registration commencement time,
Finance F lends Grant A $5,000 and takes a security interest in
Grant A's car as collateral for the loan. Despite being
registrable on the NSW Register of Encumbered Vehicles, Finance F
fails to register its interest. Two months after the registration
commencement time, Grant A becomes insolvent. Bank D's
registration was migrated to the PPS Register and is deemed to be
registered from immediately before the registration commencement
time. Finance F has not registered its interest on the PPS
Register. The priority would be determined as if the Bill had not
been enacted and Bank D would have priority over the liquidator and
Finance F as an unregistered security interest.
Priority after temporary perfection period
30. The effect of limiting the temporary perfection period would be that
secured parties are encouraged to register their non-migrated security
interests during the 24 month temporary perfection period. Disputes
about the priority between security interests most commonly arise in
cases of bankruptcy or insolvency, and in these circumstances the Bill
would not confer priority on eligible non-migrated security interests
for longer than 24 months. After the temporary perfection period, in
an insolvency, the priorities would be determined under the
substantive provisions of the Bill. However, if secured parties
register during the temporary perfection period and maintain that
perfection, their interests would have been continuously perfected
from immediately before the registration commencement time.
Example
Grant A is a fruit packer. On 5 February 2010, Finance B lends
Grant A $5,000 and takes a security interest in Grant A's truck.
The PPS Register commences on 1 May 2010. On 6 August 2010,
Finance A lends Grant A $10,000 and takes a security interest in
the same truck, which it registers on the PPS Register. Grant A
becomes insolvent on 1 October 2012. Finance B has not registered
its interest on the NSW Register of Encumbered Vehicles. Finance
A's registered interest in Grant A's truck would have priority over
Finance B's unregistered interest, because the priority provisions
of the Bill would give priority to a perfected interest. The two
year temporary perfection period ended on 31 May 2012 without
Finance B registering its interest and Finance A's interest is
perfected by registration.
Example
Facts as above, except Finance B registers its security interest on
24 June 2012 after the end of the temporary perfection period.
Grant A becomes insolvent on 1 October 2012. The first in time
rule in the Bill would apply and Finance A's registered interest in
Grant A's painting would have priority over Finance B's registered
interest. Finance B would not benefit from the temporary
perfection period in the Bill because there would be a gap between
the temporary perfection period and the registration of the
interest.
Priority between transitional security interests, including migrated
security interests
31. The Bill would also provide rules for determining priority between
different transitional security interests. The interests would have
the same priority they would have had if the Bill had not been
enacted. The period for which this rule applies (the priority period)
would be limited by the Bill depending on the particular interests
involved (clause 324).
32. After the end of the priority period, the security interests would
have priority between themselves that is determined under the Bill
(clause 324(3)).
33. Where two non-migrated security interests compete for priority, the
priority period would generally be the 24 month temporary perfection
period. However, if one of the security interests had been perfected
by registration and the registration had expired during that period,
the priority period would end when that registration expired
(clause 322(2)). Where both security interests had been registered
and both of the registrations expire within the 24 months temporary
perfection period, the priority period would finish on the earlier of
the dates on which the registrations expire.
Example
On 13 June 2008, Finance F lends Grant A $5,000 and takes a
security interest in his racing bicycle. On 16 September 2009,
Finance B lends Grant A $6,000 and also takes a security interest
in the same bicycle. On 1 May 2010, the PPS Register commences
operation. Prior to the PPS Register there was no register on
which interests in bicycles could be registered. On 27 September
2010, within the temporary perfection period, Grant A becomes
insolvent. The two interests would have priority determined as if
the Bill were not in operation, so Finance F's earlier interest
would have priority.
Example
Facts as above, except on 11 June 2010 Finance B registers its
interest on the PPS Register, and on 27 September 2012 Grant A
becomes insolvent. The date of insolvency is no longer within the
two year temporary perfection period. Finance B's interest is now
perfected by registration, and Finance F's is unperfected. The
Bill would give Finance B's registered interest priority.
Example
Facts as above, except on 30 July 2011 Finance B's registration
ends, and on 20 August 2011, Grant A becomes insolvent. The date
of insolvency is within the two year temporary perfection period.
Finance F continues to have temporary perfection, and Finance B's
continuous perfection has stopped and its interest will no longer
have temporary perfection. The priorities would be determined
under the Bill. Finance B's interest would be unperfected under
the Bill and Finance F's interest would therefore have priority as
it is perfected by temporary perfection.
34. Where a migrated security interest and a non-migrated transitional
security interest compete for priority, the priority period would end
at the earliest of the expiry of the 24 month temporary perfection
period or the time when one of the security interest stops being
continuously perfected.
Example
On 1 April 2010, Company A establishes a charge over Company B's
assets in the sum of $100,000. Company A does not register its
charge prior to the PPS registration commencement time on 1 May
2010. Under the Corporations Act, Company A has 45 days to
register the charge. As a result, Company A would be eligible for
temporary perfection under the Bill. On 5 April 2010, Company L
also establishes a charge over Company B's assets, in the sum of
$25,000. Company L creates the charge despite being aware of
Company A's charge over Company B's property. On 16 April 2010,
Company L registers the charge on the Australian Securities and
Investment Commission Register in accordance with the Corporations
Act. Company A's registered charge is migrated to the PPS
Register.
On 27 September 2010 Company B becomes insolvent. As a migrated
security interest, Company L's security interest would have
effective registration from immediately prior to the registration
commencement time. As a non-migrated security interest, Company
A's security interest would have temporary perfection from
immediately before the registration commencement time. The
priority has come to be determined during the priority period and
would therefore be determined as if the Bill had not been enacted.
At this time Company A's charge would have priority, because the
Corporations Act gives priority to an unregistered charge over a
registered charge where the registered chargee has notice of the
unregistered charge when registering.
Example
Facts as above except, Company A does not register during the
temporary perfection period and Company B becomes insolvent on
2 October 2012. Because the temporary perfection period for
Company A's transitional interest has ended, the priority between
the two interests will be determined by the provisions that apply
after the priority period. The priority will therefore be
determined by the Bill. Because Company B's interest is taken to
be perfected by registration until the registration end date and
Company L's interest is no longer temporarily perfected, Company
L's security interest would have priority, as the Bill would give
priority to a perfected interest.
35. Where two migrated security interests compete for priority, the
priority period would finish at the earliest date on which one of the
registrations expires.
Example
On 5 March 2008, Finance A lends Grant A $60,000 to buy a car and
takes a security interest in the car. Finance A registers its
interest on 10 March 2008 on the Queensland Register of Encumbered
Vehicles, with an end date of 10 March 2015. On 16 June 2009,
Finance B lends Grant A $5,000 and also takes a security interest
in the car. Faith Finance registers its interest on the Queensland
Register of Encumbered Vehicles, with an end date of 16 June 2016.
The start of the day on 1 May 2010 is the registration commencement
time, and both Finance A's and Finance B's interests appear on the
new PPS Register.
Grant A becomes insolvent on 1 March 2015. Because the priority
has come to be determined during the priority period, the priority
will be determined as if the Bill had not been enacted. Finance
A's interest has priority because the Motor Vehicles and Boats
Securities Act 1986 (Qld) would have given Finance A's earlier
registered interest priority.
Example
Facts as above, except Grant A becomes insolvent on 11 May 2015,
after the end date of Finance A's registration. Because the
priority has come to be determined after the priority period, the
priority will be determined by the Bill. Finance A's interest is
now unregistered, so the Bill would give priority to Finance B's
perfected migrated security interest.
36. In some cases, the Bill would give both interests exactly the same
priority. This is because the temporary perfection provisions give
exactly the same start time for temporary perfection for all
transitional security interests. For example, if two non-migrated
interest holders have registered during the temporary perfection
period, their interests would have been perfected from exactly the
same time, and the Bill would give them equal priority.
37. In any case, where the Bill would apply and would not result in either
security interest having priority over the other, the Bill would give
the interests the same priority between themselves they would have had
if the Bill had not been enacted (clause 324(3)).
Priority not on insolvency/bankruptcy or registration
38. The priority rules would be different where priority is to be
determined between a transitional security interest and a competing
interest but:
. The issue of priority does not arise because of an insolvency or
bankruptcy; and
. priority is to be determined where the secured party holds a non-
migrated security interest but they have not registered it (clause
326).
39. This alternative priority rule would apply to a competing security
interest whether or not the competing interest is a transitional
security interest and whether or not the competing interest is an
interest to which these provisions would apply. The competing
security interest could be any kind of security interest, including a
registered security interest.
40. Because a determination of the priority in these cases could involve
the acquisition of property on just terms, the transitional security
interest and the competing security interest in the collateral would
have the priority between themselves that they would have had if the
Bill had not been enacted (clause 326(3)).
Taking free and vesting of transitional security interests
41. The provisions in the Bill relating to acquiring collateral free of
security interests and vesting of unperfected security interests in
the grantor would apply to transitional and migrated security
interests only in cases of bankruptcy or insolvency or where a secured
party has assented to the Bill by registering their transitional
security interest or re-registering or amending the registration of
their migrated security interest (clauses 327 and 328). As a result,
collateral might be transferred free of a security interest under the
Bill where, under the law prior to the Bill, the same collateral would
have transferred subject to the security interest. In cases where
this would not apply, the pre - registration commencement time law
would apply (clause 329).
Migration provisions
42. Registered interests on transitional registers would generally be
migrated to the new PPS Register. Migration would be done by an
officer or agency of the Commonwealth, a State or a Territory giving
data in the approved form to the PPS Registrar and the Registrar
accepting that data (clause 330). The Registrar would be able to
compel an officer or agency of the Commonwealth to provide data in the
approved form to the Registrar (clause 331).
43. A security interest would be a migrated security interest if:
. it is a transitional security interest in personal property;
. data is given to and accepted by the Registrar;
. the registration was effective on the transitional register
immediately before the registration was given to the Registrar; and
. the registration on the transitional register was authorised by the
law under which the transitional register was maintained (clause
332).
44. The migration provisions would provide that the Registrar may
determine, by legislative instrument, that a class of personal
property about which data had been given to the Registrar is
registrable, and allow the Registrar to register items in that class
before the registration commencement time (clause 333).
45. This would involve the Registrar determining that, for example, 'valid
registrations on the Queensland Vehicle Securities Register perfecting
security interests at the registration commencement time' is a class
of registrable property. A register may be unsuitable for migration
because:
. the information in the register is not clearly set out;
. it is a register of interests to which the Bill does not apply; or
. it does not contain sufficient identifying information.
46. If a particular interest is not migrated across from an existing
register because the Registrar has not determined the information on
that register to be a registrable class of property, the interest
would be a non-migrated security interest. If the interest is a type
of interest governed by the Bill, the transitional provisions would
protect the rights of the secured party.
47. These provisions would not apply to certain transitional security
interests prescribed in the regulations and as a result those
interests would not obtain temporary perfection (clause 320(5)).
48. If a particular interest is migrated to the PPS Register despite
falling outside the classes of personal property determined by the
Registrar to be registrable, the data would be taken not to be, and
never to have been, included in the PPS Register (clause 334(1)). The
Registrar would be able to determine a time before which the Registrar
would be able to register a financing change statement to remove data
incorrectly registered in the migration process (clause 334(2)) Where
data needs to be removed after the determined time, the data would
need to be removed under another provision of the Bill.
49. The Registrar would have to give a verification statement to the
secured party of the registration that is removed but there would be
no obligation on the secured party to provide a notice of the
verification statement to the grantor (clause 335).
50. Each migrated registration would need to have an end time. This would
be the end time in the transitional register, according to the law
under which the transitional register was maintained (clause 333(4)).
Typically, this end time would be listed on the register from which
the information is being migrated. If a particular registration fails
to list this information, the Registrar would assign an appropriate
end time, for example, the latest end date allowed by the legislation
governing the particular register (clause 153).
Preparatory registration for collateral secured by transitional security
interests
51. The migration provisions would allow a non-migrated transitional
security interest to be registered between the migration time and the
registration commencement time (clause 336). A secured party that
registers their security interest in this time would receive the same
protection under the Bill as a secured party who registers their
security interest within the 24 month temporary perfection period.
The registration time for registrations of this nature would be
immediately before the registration commencement time.
52. The holder of a non-migrated security interest that is excluded from
temporary perfection would be able to apply for preparatory
registration in order to secure perfection from immediately before the
registration commencement time.
Registration defects
53. The Registrar would be able to determine that certain registrations
are effective despite defects that would render them ineffective under
the Bill (clause 337). This provision is necessary because some
transitional registers do not include information that would be
required on the PPS register. In the case of other transitional
security interests, the Registrar could decide that secured parties
should be given an opportunity to correct certain details of the
registration where they have perfected their interest.
Example
State vehicle registers do not include information about the
grantor of the interest. The Bill would enable the Registrar to
determine that a migrated State vehicle registration, for a vehicle
that is commercial property, is not ineffective merely because a
search of the PPS Register, by reference only to the individual or
corporate details of the grantor in respect of the collateral, is
not capable of returning the relevant registration.
54. A registration on the PPS Register would be ineffective because of a
defect if, and only if, there is a seriously misleading defect in the
data or there is a specified defect (clauses 164) and 165). If a
registration falls within the scope of the Registrar's determination,
the registration would not be ineffective because of the defect until:
. in relation to a non-migrated security interest, the end of the
month that is 36 months after the security interest becomes
unperfected; or
. in relation to a migrated security interest, the end time included
when the security interest is migrated (clause 337).
55. Once these times have lapsed, the registration would become
ineffective unless the registration is amended to correct the defect
before the relevant time lapses.
Charges and fixed and floating charges
56. The Bill would implement a functional approach to security interests,
and apply to all security transactions that in effect secure payment
or the performance of an obligation - including fixed and floating
charges. As a result, transactions that are currently structured as
fixed charges or floating charges would become security interests
under the Bill.
57. Some statutes currently refer to fixed charges, floating charges or
charges and the Bill would maintain the effect of the existing
provisions so that parties would not be able to avoid existing
provisions governing fixed and floating charges. Similarly, some
security agreements may refer to fixed or floating charges.
58. The Bill would provide that in any Commonwealth law or security
agreement, a reference to a charge would be taken to be a reference to
a security interest that has attached to a circulating asset or
personal property that is not a circulating asset (clause 339(3)).
59. The reference to a charge would apply to a charge only to the extent
that the charge has attached to personal property owned by the grantor
(clause 339(1)). As a result, a reference to a charge would not apply
to property owned by the secured party-such as the collateral in a
retention of title arrangement, lease or consignment.
60. A reference to a floating charge over property would be taken to be a
reference to a security interest that attaches to a circulating asset
(clause 339(5)).
61. There would be two classes of circulating assets:
. where a secured party has given the grantor express or implied
authority for any transfer of the personal property to be made, in
the ordinary course of the grantor's business, free of the security
interest (clause 340(1)) (the personal property would not be a
circulating asset merely because the secured party has given
express authority to transfer specific personal property or a
specific class of personal property free of a security interest
(clause 340(4)) and
. current assets as follows:
o accounts that arise 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);
o accounts that are the proceeds of inventory;
o ADI accounts (other than term deposits);
o currency;
o inventory; and
o negotiable instruments. (Clause 340(5)).
62. However, personal property would not be a circulating asset if:
. the personal property consists of goods and the security interest
in the goods is perfected by possession (clause 340(3);
. the secured party has registered a collateral description in a
current asset that discloses that the secured party has control of
the personal property and the secured party does have control of
the current asset (clause 340(2)).
63. A person would have control of inventory if the secured party and the
grantor have agreed in writing that the grantor would specifically
appropriate the inventory to the security interest and would not
remove any specifically appropriated inventory without previously
obtaining express authority from the secured party to do so (and it is
the grantor's usual practice to comply) (clause 341(1)).
64. A person would have control of an account if:
. the secured party and the person to whom the relevant account is
owed have agreed in writing that amounts paid to discharge the
account must be deposited into a specified ADI account and it is
usual practice for those amounts to be deposited in that manner;
. the secured party controls the ADI account and any deposits into
the ADI account do not result in any person becoming liable to pay
the person to whom the relevant account is owed or, if that person
is a body corporate, to pay a related body corporate (clause
341(3)).
65. This applies to:
. 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); and
. an account that is the proceeds of inventory. (Clause 341(2)).
66. These provisions would not be exhaustive of when a person might have
control of a current asset.
67. The definition of circulating asset would confirm the existing case
law on floating charges, which provides that in determining whether a
floating charge exists over personal property, consideration must be
given to both the express terms of the agreement between the parties
as well as to the actual level of control exerted by the secured
party. The provision takes into account current case law on the
nature of floating charges so that, in determining whether a charge is
a floating charge, consideration would be given to the intention of
the parties as demonstrated by both their contract and their practice.
Review of operation of Act
68. The Minister would have to arrange for a review of the operation of
the Bill to be undertaken and completed within 3 years after the
registration commencement time (clause 343). The persons who
undertake the review would have to provide a report to the Minister
which would be tabled in both Houses of Parliament within 15 sitting
days after the report is given to the Minister.
table of clause references
clause 1 14
clause 2 14
clause 3 14
clause 6 15, 79, 105, 106, 108
clause 7 15, 106
clause 8 16, 18
clause 10 15, 29, 41, 54, 60, 78, 87
clause 12 18, 77
clause 13 42
clause 14 42, 43
clause 15 8
clause 18 17, 28, 41, 113
clause 19 19, 20, 24
clause 20 17, 19, 20
clause 21 19, 20, 21, 22, 39, 128
clause 22 21, 35
clause 24 22
clause 25 23, 39
clause 26 23, 113
clause 27 23, 24
clause 28 24
clause 29 24
clause 31 24, 25
clause 32 24, 25, 26, 28, 44
clause 33 21, 25, 26, 35
clause 34 21, 26, 35, 46
clause 35 21, 27, 36
clause 36 21, 22, 27, 36
clause 37 27, 49
clause 38 27, 28, 36, 49
clause 39 21, 28, 36
clause 40 21, 28, 36
clause 42 28, 35
clause 43 29, 37
clause 44 30, 121
clause 45 31, 32
clause 46 33
clause 47 34
clause 48 35, 37
clause 49 35
clause 50 35
clause 51 35
clause 52 36
clause 53 36
clause 55 38, 40
clause 56 38
clause 57 39
clause 58 41, 47
clause 59 40
clause 60 41
clause 61 41
clause 62 42, 46, 120
clause 63 20, 45
clause 64 42, 44, 120
clause 65 42
clause 66 45
clause 67 46
clause 68 46, 47
clause 69 47
clause 70 48
clause 71 48
clause 72 48
clause 73 37, 49
clause 74 49
clause 75 40
clause 76 49, 50
clause 77 50
clause 79 50
clause 80 50, 51
clause 81 51
clause 84 53
clause 85 53, 54
clause 86 54
clause 88 54
clause 89 54
clause 90 55
clause 91 55
clause 92 56, 117
clause 93 56
clause 94 56
clause 95 56, 67
clause 96 56
clause 97 56
clause 99 56, 57
clause 100 57
clause 101 57
clause 102 57
clause 103 57
clause 105 58
clause 106 58
clause 109 19, 59, 73
clause 110 59
clause 111 60, 72
clause 112 60
clause 113 60
clause 114 59
clause 115 61, 75
clause 116 61
clause 117 60, 61, 62
clause 118 60, 61, 62, 67, 117
clause 119 62
clause 120 60, 68, 74, 120
clause 121 67, 68, 120
clause 123 37, 56, 64, 65, 69
clause 124 64, 69
clause 125 70
clause 126 65, 69
clause 127 64, 69, 120
clause 128 60, 65, 70, 71, 74
clause 129 60, 71, 121
clause 130 37, 65, 67, 71, 120
clause 131 72, 117
clause 132 65, 67, 73, 120
clause 133 73
clause 134 60, 73
clause 135 67, 74, 120
clause 136 74
clause 137 74
clause 138 74, 120
clause 140 36, 62, 65, 66, 68, 70, 74
clause 142 75
clause 143 75
clause 147 77, 99
clause 148 14, 77
clause 150 78, 98, 99
clause 151 78, 79
clause 152 79
clause 153 79, 80, 81, 82, 83, 119, 135
clause 154 81, 84
clause 155 84, 89
clause 156 84, 89, 96, 97
clause 157 85, 89
clause 158 85
clause 160 83, 85
clause 161 86
clause 162 86
clause 163 83, 86
clause 164 65, 80, 87, 136
clause 165 87, 136
clause 166 83, 88, 120
clause 167 88, 120
clause 168 86, 89
clause 170 90, 93, 99
clause 171 90, 91
clause 172 76, 90, 91, 92
clause 173 92, 100
clause 174 93
clause 175 93, 99
clause 176 94, 99, 100
clause 178 94, 99
clause 179 95
clause 180 95, 100, 117
clause 181 95, 96, 99
clause 182 96, 97, 120
clause 184 97, 99
clause 185 98
clause 186 73, 98, 99
clause 187 98
clause 188 98, 99
clause 190 89, 93, 94, 98, 100
clause 191 78, 97
clause 192 99
clause 194 99
clause 195 99
clause 196 99
clause 197 100
clause 198 99
clause 199 100
clause 200 99
clause 201 99
clause 202 99
clause 203 100
clause 206 101
clause 207 101
clause 208 101
clause 209 101
clause 210 102
clause 211 101, 102
clause 212 101, 102
clause 213 102
clause 214 102
clause 215 102
clause 216 102
clause 217 102
clause 218 96, 100, 102
clause 219 100, 102
clause 221 103
clause 222 103
clause 223 103
clause 224 103
clause 225 103
clause 226 103
clause 227 103
clause 228 104
clause 229 104
clause 230 104
clause 231 104
clause 234 105
clause 235 15, 106
clause 236 107
clause 237 106, 107, 108, 109
clause 238 105, 107, 108, 109
clause 239 105, 106, 109, 110
clause 240 105, 106, 110, 111
clause 241 105, 111
clause 243 40, 112
clause 244 112
clause 245 112
clause 247 112
clause 248 40, 112
clause 249 40, 112
clause 250 112
clause 252 40
clause 254 59, 113
clause 255 113
clause 256 113
clause 257 17
clause 258 114
clause 259 114
clause 260 113
clause 261 114
clause 262 114
clause 263 114
clause 264 115
clause 267 116, 117, 121
clause 268 116
clause 269 117
clause 271 79, 85, 89, 117
clause 272 117
clause 273 118
clause 275 118, 119, 120
clause 276 119
clause 277 118
clause 278 118
clause 279 119, 121
clause 280 119
clause 281 119, 121
clause 282 119
clause 283 118
clause 285 119
clause 286 119
clause 289 81, 119
clause 290 119
clause 291 120
clause 292 120
clause 293 89, 94, 96
clause 296 121
clause 297 88, 122
clause 298 122
clause 299 122
clause 302 123
clause 303 123
clause 306 14, 15, 125
clause 307 125
clause 308 125
clause 310 14, 127
clause 311 127
clause 312 49, 127
clause 313 127
clause 314 127
clause 315 14, 127
clause 316 127
clause 317 127
clause 318 127
clause 320 129, 135
clause 321 129
clause 322 36, 128, 131
clause 323 128
clause 324 131, 133
clause 325 124, 128
clause 326 133, 134
clause 327 134
clause 328 134
clause 329 134
clause 330 14, 134
clause 331 14, 134
clause 332 128, 134
clause 333 134, 135
clause 334 99, 135
clause 335 135
clause 336 135
clause 337 135, 136
clause 339 136
clause 340 136, 137
clause 341 137, 138
clause 343 138
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