Sweeping changes to Australia’s personal property securities laws have just come into operation, with far-reaching consequences for business.
Allens Arthur Robinson Partners Steve Pemberton and Greg Bosmans and Senior Associate Vida Wongseelashote, have issued a report examining how M&A transactions will be affected.
It states that the changes to the law in relation to security interests in personal property have replaced Federal, state and territory laws with a single piece of legislation, the PPS Act. Under the PPS Act, a party with a security interest in personal property now bears the responsibility of putting the world on notice of its interest – by ‘perfecting’ that interest – to avoid defeat on the sale of the property, loss of the interest in an insolvency scenario, and loss of priority to other secured parties. ‘Perfection’ of a security interest in personal property is attained either by possession or control of the property, or by registration of the interest on the new online personal property securities register (the PPS Register). The new laws will significantly affect the buying and selling of companies and businesses.
Under the old law, due diligence would involve a search of the ASIC database to find out whether a third party had a registered charge over the vendor’s assets. Importantly, the charge instrument would often be filed with ASIC as evidence of the creation of the charge and therefore would usually be available to the public. This made it straightforward for prospective purchasers of a business or company to know which of the vendor’s assets were the subject of a registered charge and to determine the extent of the release required at completion.1
Under the PPS Act, secured parties will register their security interests online on the new PPS Register by filing a ‘financing statement’. The information contained on a financing statement is basic – the identity of the secured party, the end time for registration, whether the security interest is subordinated to another security interest (optional), and a limited description of the relevant property (the ‘collateral’). Most significantly for due diligence, the instrument creating the security interest is not filed on the PPS Register. Searching the PPS Register will only reveal the information provided on the financing statements.
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