What you should know about the Personal Property Securities Register (PPSR)
Prior to the Personal Property Securities (PPS) reform, security interests in watercraft were predominantly created by way of mortgage or fixed and floating charge, which were registered on the Australian Securities and Investment Commission (ASIC) Register of Company Charges. Registration and the relative priority of these interests were governed by the Corporations Act 2001 (Cth).
Shipping registration remains a function with each Australian State and Territory maintaining records of ships and small watercraft that are subject to their jurisdictions. These records, however, are maintained for regulatory and marine safety purposes at a state level and are not changed by PPS reform.
The effect of PPS reform on security interests in watercraft
On 30 January 2012, the Personal Property Securities Act 2009 (Cth) (PPS Act) commenced in Australia and established a new system for the registration of security interests in personal property (generally all property other than land, fixtures and certain statutory interests). Importantly, watercraft is personal property to which the PPS Act applies and security interests in watercraft can be registered on the PPSR.
The PPS Act broadens the concept of a ‘security interest’; the definition looks at what the effect of the transaction is rather than the form it takes. Essentially, it is whether the transaction provides for an interest in personal property in order to secure payment or performance of an obligation.
How are leasing arrangements treated under the PPS Act?
As a result of this wider concept of security interest, some transactions that have not been traditionally regarded as creating security interests will be treated as doing so. For example, because they effectively secure an obligation, finance leases and hire purchase agreements are regarded as creating security interests under the PPS Act.
How are retention of title (ROT) arrangements treated under the PPS Act?
A term of an agreement that provides that property is sold or leased on the basis that the purchaser takes possession of the property but legal ownership, or title, to the property remains with the seller until full payment for the property is made is commonly referred to as a retention of title, or ‘Romalpa’ clause.
The PPS Act recognises that ROT arrangements effectively use the property sold or leased to secure the payments owed. The transaction creates a security interest and the owner of the property supplied is a secured party. As a result, a supplier who sells on ROT terms may be at risk of losing its ownership interest in the property if the security interest is not registered on the PPSR.
The terms of supply agreements and leases may need to be reviewed by business owners or their business advisors to determine whether they come under the PPS Act.
Why register on the PPSR?
An important aspect of the PPS Act is that it does not generally have regard to the identity of the owner of the property the subject of a security interest when determining priority between two or more security interests in the same property. For example, a security interest that is created as an incident of ownership, such as the interest of a lessor of a small craft, will have its priority against another security interest determined by the priority rules in the PPS Act rather than by the fact that the lessor is the owner of the property.
The PPS Act generally requires the registration of security interests in order for priority to be maximised. As a simple example, a registered security interest will have priority over an unregistered security interest despite being created after the unregistered security interest and regardless of whether there was knowledge of the existence of the earlier interest.
Also if a secured party, such as a lessor, fails to register its security interest, it could lose its property in the event that the lessee becomes bankrupt or is placed into liquidation; it could also lose its interest in the property if the security interest is unregistered and the property is subsequently sold or leased. In the case of serial numbered goods, as discussed further below, a failure to register by serial number may also result in the loss of a security interest in the property.
What are the details asked for when registering a security interest in watercraft on the PPSR?
The PPS Act and the Personal Property Securities Regulations 2010 (Cth) set out the details required when registering security interests on the PPSR. For the purposes of registration, ‘watercraft’ is a collateral class that requires further description by sub-class.
A watercraft is a boat or vessel (other than a seaplane) that is used, or intended to be used, in navigation by water or for any other purpose on water that has:
- a hull identification number (HIN), or
- an official number, within the meaning of the Shipping Registration Regulations 1981, issued by the Registrar of Ships (within the meaning of the Shipping Registration Act 1981).
If the watercraft is consumer property, a registration must include one of these two designators. A failure to do so will render the registration ineffective. The inclusion of the relevant serial number is optional for watercraft that is commercial property, however, a buyer or lessee of the watercraft will ‘take free’ of any security interest in the property.
Is there a cost to search or register on the PPSR?
Fees apply for searching and making registrations on the PPSR. The cost will depend on the duration of the registration. Registrations in respect to serial numbered goods, such as watercraft, are limited to a maximum of seven years in duration. For search and registration costs, see Fees for using the PPSR.
This information should be read in conjunction with PPSR ‘Key concepts explained’.
PPS transitional provisions
For more information on the PPS transitional provisions including transitional security interests and migrated registrations please see:
Professional advice recommended
PPS could affect you or your business in a number of different ways. You should seek professional advice in relation to your specific circumstances.