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Australia – The End Is Nigh: Transitional Perfection Period Is Nearly Over.

30 October, 2013

 

Legal News & Analysis – Asia Pacific – Australia – Capital Markets

 

WHAT YOU NEED TO KNOW

 

  • The 24 month transitional perfection period for transitional security interests will expire on 31 January 2014
 

WHAT YOU NEED TO DO

 

  • Secured parties need to ensure that they have perfected their transitional security interests by 31 January 2014.
  • Secured parties should also ensure that they include the correct information in any financing statement that they register to perfect a transitional security interest.
 

Application Of The PPSA To Transitional Security Interests


The Personal Property Securities Act 2009 (Cth) (PPSA) commenced operation on 30 January 2012. It revolutionised Australian law and practice relating to security interests.
The PPSA applies to pre-existing security interests in much the same way as it applies to security interests that arise after it commenced. The PPSA refers to security interests that arose before commencement, or that arise after commencement but under a security agreement that was entered into before commencement, as “transitional security interests”.


The PPSA did however recognise that it would not be appropriate for transitional security interests to be subjected to all of the PPSA’s requirements. For example, the PPSA provides that a transitional security interest will be deemed to have attached, and to be enforceable against third parties, if it was an effective security under the pre-PPSA law. The PPSA also deemed most transitional security interests to be perfected for a period of just over 24 months from commencement, to give secured parties time to do their own registrations (or to perfect in some other way). This transitional perfection period has only 3 months to go, and expires at midnight on 31 January 2014.


What Do You Need To Do?


Perfect Your Transitional Security Interests By 31 January 2014


Any holder of a transitional security interest who is relying on the transitional perfection period will need to take steps to perfect its security interest by some other means, before the end of January 2014. If it does not do so, its security interest will become unperfected. This will expose the secured party to the risk that its security interest could rank behind other security interests in a priority dispute, or even be extinguished entirely (for example, if the grantor transfers the collateral to another person). Most security interests, if they are not perfected, are also at risk of being extinguished if the grantor is wound up or bankrupted.


We expect that most transitional secured parties will perfect their transitional security interests by registering a financing statement on the PPS Register. As an incentive, the Registrar does not charge a fee for this.


Ensure That You Put The Correct Information In The Financing Statement


If a secured party wants to perfect by way of registration, it will need to ensure that the financing statement contains the correct details of the grantor, or its registration will be ineffective. This can be challenging where the grantor is an individual.


The Personal Property Securities Regulations 2010 set out the rules that determine where a secured party needs to source the grantor’s details from. Most secured parties will need to source the information for an individual grantor from the individual’s drivers licence, but each secured party will need to work through the rules in the Regulations to ensure that they are using the correct source.


Obtaining the correct information can take time, particularly if the grantor is hard to locate or may not respond promptly to a request to provide the necessary information to the secured party. This means that secured parties should begin the process as soon as possible.

 

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For further information, please contact:

 

Bruce Whittaker, Partner, Ashurst
bruce.whittaker@ashurst.com

 

Tina Davey,​ Ashurst
tina.davey@ashurst.com

 

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