The Personal Property Securities Act 2009 (Cth) (PPSA) is expected to come in to operation on 1 February 2012 and will have a significant impact on the taking, registration and enforcement of security interest over almost all kinds of property, except land.

The PPSA establishes a single national law governing security interests in personal property and replaces a number of existing registers, such as the Register of Encumbered Vehicles, to create one online register which allows the public to search for and register security interests in personal property. Existing registered security interests will be ‘migrated’ to the new register.

A security interest is an interest in relation to personal property arising from a transaction that secures payment or the performance of an obligation and without regard to the form of the transaction or the identity of the person who own the property. As the definition of security interest is without regard to the identity of the person who has the title to the property, it may allow for a person to grant a security interest over property even if they don’t own it!

Personal property is any form of property other than land or buildings, or fixtures which form part of the land. It can include tangible property such as cars, boats, machinery, and crops as well as intangible property such as shares, intellectually property (such as a licence) and contract rights. Under the PPSA a security interest must be properly established (often by registration) to be enforceable. If a dispute arises as to the priority of security interests (that is, who ranks ahead of who) registered securities have priority over unregistered securities and registered securities rank in order of time of registration.

A crucial aspect of the PPSA is the effect of retention of title (ROT) clauses. ROT clauses are frequently used in contracts to retain title to goods that are being sold on credit or are otherwise handed over to someone who has not paid for them in full. Prior to the PPSA, ROT clauses were effective and enforceable without registration. Under the PPSA they will need to be registered. If someone provides goods to someone else without receiving full payment, and does not register the ROT as a security interest, they will run the risk that some other party will register a security in respect of those goods. The registered third party could then potentially have the right to take the goods to satisfy their debt first. This may be the case even if there is a written contract with the person who holds the goods and even if there is an ROT clause.

Apart from the far reaching effect on businesses, the PPSA will also impact buyers of valuable goods who will soon be able to check one single register rather than any of the existing registers. When purchasing items such as cars, boats or machinery a search of the register should be done using a serial number, such as a vehicle identification number or a hull identification number. Consumers will also need to be vigilant when purchasing other valuable items such as artwork from private individuals and in these instances should conduct a search by the name of the vendor/grantor and their date of birth as it appears on an official document, such as a driver’s license.