Registering Transitional Security Interests

The introduction of the PPSR required that personal property security interests be ‘perfected’ in order to achieve full effectiveness under the PPSA.  

While this perfection is commonly interpreted to mean registration on the PPSR, the Government has made it clear that security interests arising from security terms in credit agreements already in place at the time of the introduction of the PPSR are deemed to have achieved that perfection via legislation. It is this provision that is referred to as the PPSR’s Transitional arrangements.

In the PPSR’s Fact Sheet on Retention of Title interests the Registrar describes the effect of the Transitional arrangements as follows:

In order to give businesses an opportunity to adjust to PPS reform and the need for registration on the PPS Register in particular, a 24 month transitional period exists from registration commencement time (RCT).

The effect of this transitional period is that ROT suppliers or lessors who have entered into agreements that create security interests in the property supplied or leased before RCT will have two years to register those interests.

It is important to note that it is the agreements that must pre-date RCT, the security interests (for example, by way of supply the goods) may arise after this time. Agreements entered into after RCT are not subject to the transitional arrangements.

It is important to note that the PPS Act does not require a registration to be made in respect of all supplies or leases to the same buyer or lessee. A single registration may cover subsequent security interests in property that is supplied under later agreements

(The full document can be obtained here: http://www.ppsr.gov.au/AsktheRegistrar/FactSheets/Documents/Retention-of-title-and-leasing.pdf)

In effect, registration on the PPSR is not necessary for perfection of the security interests held over a supplier's pre-PPSR client base until 29^th January 2014.

Where Transitional security interests are registered on the PPSR the specific date of that registration is held to be irrelevant in determining any matters of priority.  

When any issues of competing security interests arise in respect of Transitional security interests the relevant date is taken to be the date of the agreement which contained the terms that gave rise to the security interest in question – eg, the date of the signed credit agreement with between supplier and customer.

Where credit agreements are signed after the commencement of the PPSR; however, the situation is completely different.  

When a supplier needs to assert their security interest in respect of a new account (established post-PPSR commencement) their priority against competing security interests will be determined by reference to the date of their registration and the date the credit agreement was formed will be held to be irrelevant.

The PPSR does not charge for registering Transitional security interests and while there is no specific hurry to do so it would be unwise to leave it to the last minute rush as the two year grace period draws to a close.

There have been a few challenges to the interpretation of the PPSA's Transitional rules which I have discussed here but nothing conclusive has been determined as yet.

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