New laws to affect standard terms and conditions - act now
The Personal Properties Security Act 2009 (Cth) (PPSA) received Royal Assent on 14 December 2009 and is expected to commence in May 2011. Its importance to Australian businesses is potentially as great if not greater than the changes brought about in 2001 by the Corporations Act 2001 (Cth). The PPSA will overhaul all areas of personal property securities and will deem certain terms in standard terms and conditions security interests.
What is a security interest?
The PPSA defines a security interest as an interest in relation to personal property provided for by a transaction that in substance secures payment or the performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property). Under the PPSA a security interest must be perfected (often by registration) to be enforceable.
What is personal property?
Personal property is any form of property other than land or buildings and fixtures which form part of that land. It can include tangibles such cars, boats, machinery, crops; as well as intangibles such as shares, intellectual property (such as a licence) and contract rights.
How will the PPSA affect my standard terms and conditions?
As a result of the PPSA, security arrangements including retention of title provisions contained in standard terms and conditions of an Australian business will need to be updated prior to May 2011 so that a security interest is not lost or otherwise defeated by a third party. Confidentiality, assignment, notice and enforcement provisions in standard terms will also need to be addressed. Some of these issues are examined below.
A. Retention of title (ROT): ROT clauses are frequently used in contracts to retain title to goods that are being sold on credit or otherwise are 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 you do not register your ROT as a security interest, you run the risk that some other party will register a security in respect of your goods. If someone else does register an interest in the same goods, and you have not registered your interest, the registered third party may have the right to take the goods to satisfy their debt ahead of you. This may be the case even if there is a ROT clause in your favour.
B. Confidentiality: Ordinarily a confidentiality clause provides that information is confidential unless the law provides otherwise. Under the PPSA, certain persons may be able to request a copy of your security agreement unless there is an obligation of confidence preventing such disclosure. Therefore standard confidentiality provisions will need review to ensure the disclosure provisions of the PPSA are appropriately contracted out of.
Other changes
Terminology such as "fixed charge" and "floating charge" will no longer be used.
- Phrases such as "attachment", "perfection", "enforcement" "purchase money security interests" and "super priority" will become commonplace as well as the rules governing them.
- The company charge registration system under the Corporations Act will be replaced with the electronic registration of security interests on the Personal Properties Security Register (PPSR), by way of a financing statement.
- The PPSR will be a single national register which will replace more than 40 other registers operated by or on behalf of the Commonwealth, States and Territories.
If you would like advice on how your standard terms and conditions and other commercial contracts can be PPSA compliant and the implications of the PPSA for your business please contact Louis van Aardt by email on lvanaardt@talbotolivier.com.au or Russell Morley on rmorley@talbotolivier.com.au for further information.
