The law in respect of receivership, administration and liquidation will not be substantially affected by the Personal Property Securities Act 2009 (Cth). The PPS Act does not alter the underlying rights of various parties in cases of receivership, administration or liquidation. In some cases the PPS Act may require that the secured party register their security interest in order to protect their rights.
The Corporations Act 2001 (Cth) has been amended by the Personal Property Securities (Corporations & Other Amendments) Act 2010 to maintain consistency with PPS Act concepts and terminology. For example, references to charges are taken to be references to security interests.
Ordinarily where default occurs under a security agreement, the secured party would enforce their rights under the terms of the security agreement and Chapter 4 of the PPS Act.
An exception to this is where a receiver is appointed to enforce the security interest by taking control of the collateral. Section 116 of the PPS Act provides that the enforcement provisions in Chapter 4 of the PPS Act do not apply where a receiver or controller is appointed under Part 5.2 of the Corporations Act.
Part 5.2 of the Corporations Act (entitled receivers, and other controllers, of property of corporations) contains the duties, liabilities and indemnities of receivers and other controllers of property. Certain provisions of Chapter 4 of the PPS Act apply to ‘controllers’ of property as defined by the Corporations Act.
Controller is broadly defined in the Corporations Act to include a person in possession or control of property for the purposes of enforcing a charge. As this definition applies to most persons enforcing a charge against a company, and the Corporations Act is not as comprehensive as the PPS Act, it is proposed that some of the enforcement provision in the PPS Act continue to apply to controllers within the meaning of Part 5.2 of the Corporations Act.
An administrator of a company will continue to have the same duties, liabilities and indemnities as currently exist under the Corporations Act.
A party with a security interest in the whole or substantially the whole of a company’s property will continue to be able to appoint an administrator to the company provided the security interest is perfected within the meaning of the PPS Act.
Procedural matters associated with the conduct of the administration are not affected by the PPS Act.
Existing restrictions on the enforcement of security interests in assets of the company continue to apply.
Property of the company that has ceased to be a ‘circulating security interest’ on account of the operation of the PPS Act or by crystallisation under a floating charge agreement may be dealt with by the administrator as though it was still a circulating security interest, including by disposal.
An administrator disposing of property of a company by way of sale must act reasonably in exercising the power of saleand distribute the proceeds of the sale in accordance with the PPS Act distribution rules.
The procedure for winding up a company is not affected by the PPS Act.
The priorities of various interested parties in insolvency are intended to continue unaffected by the PPS Act. There will however be changes to Corporations Act terminology that apply to these transactions. The table below summarises these changes.
PPS Act terminology
Circulating security interest, or, security interest in circulating assets
Retention of title transactions, leasing finance, hire-purchase arrangements, consignment
PPS Act retention of title property
A winding up order does not affect the rights of a secured party, including one with a security interest in circulating assets, to realise or otherwise deal with the security interest . Unsecured creditors retain their right to prove their debt. Property subject to title-based security interests such as retention of title suppliers or lessors under PPS leases would not be ‘property’, within the meaning of the Corporations Act, available to the liquidator to distribute in the insolvency. Accordingly, secured parties with title-based security interests could enforce their security interest under the PPS Act.
However the rights of a secured party to enforce their security interest in insolvency are subject to a requirement that the security interest be registered. This is because an unregistered, or unperfected security interest or circulating security interest vestsin the grantor company upon insolvency. If the security interest was not registered and therefore vested in the grantor, the creditor or secured party would continue to have rights to prove the outstanding amount to the liquidator.
Priority payments and priority of employees’ claims continue to apply. Consistent with the law that currently applies to floating charges, a security interest in circulating assets is subordinate to employee claims.
- Section 9, Corporations Act
- Section 436C, Corporations Act
- Section 440B, Corporations Act
- Section 442B, Corporations Act
- Section 442C, Corporations Act
- Section 442CB, Corporations Act
- Section 442CB, Corporations Act and section 140 PPS Act
- Section 471C, Corporations Act
- Section 13(2), PPS Act
- Section 513AA, Corporations Act
- This is based upon the definition of PPS retention of title property in sections 51F of the Corporations Act and the operation of section 513AA, Corporations Act
- Sections 267 and 267A, PPS Act and section 588FJ and Divs 2A and 2B, Corporations Act
- Sections 556 and 561, Corporations Act
- Sections 561, Corporations Act