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24 Jul 12
PPSA for local government

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By Brad McCosker (Partner)

The Personal Property Securities Act 2009 (Cth) (PPSA) significantly changes the way securities are dealt with and brings with it a number of key risks for local government. It is widely regarded as the most significant change to the law in Australia since the introduction of the GST.

What is the PPSA?

The intent behind the PPSA is to create a single register where all forms of ‘security interests’ in respect of ‘personal property’ must be registered. Failure to register a security interest may mean that the interest is lost through a subsequent transaction involving the ‘personal property’.

Under the PPSA there are two key concepts:

  • ‘personal property’ which is defined as all property (including a licence) but excluding land, interests in land and certain other excluded assets, and
  • ‘security interests’ which is broadly defined as an interest in personal property arising from a transaction that, in substance, secures payment of money or the performance of an obligation. 

For example, under an agreement where Council allows a contractor to use a truck (an item of personal property) owned by Council for a period more than 90 days to complete a job:

  • the interest in personal property is the interest Council has in getting the Council’s truck back at the end of the job
  • the transaction is the agreement, and
  • the performance of an obligation is the contractor’s obligation to give the truck back at the end of the job.

To maintain that security interest, the Council as owner of the ‘personal property’ must either ensure that it has possession of the personal property at all times or alternatively that the security interest is registered on the Personal Property Securities Register. Failure to register may mean that, if the contractor suffers an insolvency event, the Council will become an unsecured creditor and may lose its personal property (notwithstanding that it is the owner).  

What does this mean for local governments?

Local governments own numerous assets that come within the definition of ‘personal property’. The most common examples for Councils are:

  • serial numbered items such as cars, boats, trucks such as waste vehicles
  • other plant and equipment such as cherry pickers, forklifts, computers, televisions etc
  • items which are not fixtures but are included in building leases, for example, tables, chairs, fridges, non-fixed sheds etc., and
  • certain transferrable intellectual property licences.

If Council does not register its security interest in assets which are classed as personal property and any of those assets are out of Council’s possession, and the entity which has possession goes insolvent, Council may lose its asset and at best become an unsecured creditor.

Training

McCullough Robertson offers implementation training and information sessions to assist our clients to protect their interests in response to PPSA changes.

 

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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