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The Personal Property Securities Act 2009 (Cth) (PPSA) is the new national personal property securities regime which will come into effect in October 2011.
Most people are unaware of the unexpected impacts the PPSA will have on the way business is conducted in the resources industry. A wide variety of resources projects and standard contractual arrangements for the industry will be affected by the PPSA, including:
- joint ventures and shareholders agreements
- charges over mining tenements
- contracts where rights to obtain property arise on default, e.g. step-in rights or dilution on default clauses
- supply contracts that have retention of title clauses
- farm-in arrangements
- royalty streams
- transactions involving deferred purchase price payments, and
- some long-term commodity supply contracts.
Why all the fuss?
The PPSA is being heralded as the most significant change to the law in Australia since the introduction of GST. The PPSA will make some everyday contractual clauses unenforceable against third parties unless they are registered on the new PPS register. It is also likely to affect most securities held or to be taken over resource projects. Whilst the PPSA will affect all industries, the impact on the resources industry is particularly unusual.
Since the PPSA was passed each state and territory in Australia has ‘opted out’ of the PPSA with respect to mining and petroleum tenures (and some other licences such as water licences). This means that for resources projects there will soon be two security regimes that apply, depending on the specific asset involved. This will add an extra layer of complexity and uncertainty to most resource projects.
Of particular concern is that when the PPSA commences in October 2011 some existing registered securities may cease to act as security over tenements, which could have serious ramifications for those who hold charges (e.g. cross charges) over mining tenements as the security they held previously may be significantly less effective.
Aren’t existing registers being migrated?
Some registers of security interests in personal property are being automatically migrated over to the new PPS register. This includes the ASIC register of charges. However, as mining and petroleum tenure are not personal property under the PPSA (because of each state and territory ‘opting out’), even though you may have security under a charge which is automatically migrated to the PPS register, that security will not be taken to be registered or enforceable against the tenement because that tenement falls outside the scope of the PPSA.
To be certain any security you hold is registered and enforceable against a tenement, you will need to ensure that any existing securities over mining or petroleum tenure are registered on the relevant Mines Department register before October 2011. Most securities over resources projects will also need to be migrated to the PPS register as most will also secure assets that fall under the PPSA e.g. minerals or coal.
Surely the PPSA won’t impact on day to day activities?
Yes, it will.
Standard contractual provisions in joint ventures and shareholders agreements (such as step-in rights and dilution on default clauses), farm-in agreements, royalty agreements and retention of title clauses in supply contracts may also constitute security interests and may warrant registration under the new regime. Money paid in relation to long-term supply contracts may also necessitate registration of interests under the new regime.
Having legal title means I’m protected, right?
Even if you are the owner of personal property, in some circumstances under the new regime if you do not have physical possession of the property your title may still be defeated by others, e.g. third party creditors. In some circumstances even the loan of mining equipment may require registration to ensure an owner’s interest is protected.
What about confidentiality?
A number of resource businesses have already raised concerns that commercially sensitive documents may be disclosed if an interest under a document (e.g. a joint venture agreement) is required to be registered. Consideration will need to be given to whether clauses of this nature are extracted into a separate document, or whether existing confidentiality clauses should be expanded to specifically exclude disclosure under the PPSA.
Want to find out more?
We will be holding a breakfast seminar on 12 July 2011 to talk through these changes and the specific implications for resource businesses. An invitation for that seminar will be sent separately.
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.