In addition to the genuine security interests defined in s12(1) of Personal Property Securities Act 2009 (PPSA 2009), there are four types of deemed security interests covered by s12(3). Certain parts of PPSA 2009, such as the registration and priority provisions, apply to these deemed security interests but other parts, such as the enforcement and the vesting rules do not. All these provisions will be examined in subsequent bulletins.
How are deemed security interests different?
The difference between a genuine security interest under s12(1) and a deemed security interest under s12(3) is that a deemed security interest is registrable, whether or not it secures payment or performance of an obligation.
The general purpose of requiring registration of deemed security interests is to make them more transparent and to protect third parties who might be deceived by the grantor’s apparent ownership of the property that is subject to the deemed security interest.
The categories of deemed security interests
Deemed security interests fall into four categories:
The interest of a transferee of an account (ie an account receivable);
The interest of a transferee of chattel paper (such as a chattel mortgage or a lease of personal property or a supply contract containing retention of title terms);
A PPS lease (this is a new term); and
A commercial consignment (such as a floor plan arrangement of a motor vehicle dealer).
In each of these cases the person who is in possession of the personal property does not own it. Third parties might, therefore, be led to believe that the person in possession could sell or lease the property free of any security interest. PPSA 2009 requires these deemed security interests to be registered. This removes the risk of an ambush.
The interest of the transferee of an account
The first type of deemed security interest is essentially the interest of an assignee of a book debt. Such a person is given a relatively high priority under PPSA 2009, as we shall see. But there are strings attached. The transferee of the account must register its interest on the PPS Register. Where several accounts are involved the registration of the security interest may contain a list of those accounts.
The interest of a transferee of chattel paper
The second type of deemed security interest is the interest of a transferee of chattel paper. Chattel paper is a new term borrowed from overseas PPS legislation. Examples of chattel paper include: a chattel mortgage, a hire purchase agreement, and a supply contract containing a retention of title clause. The chattel paper has two elements; First, the interest in the paper instrument itself and the right to receive payments such as rent, hire charges or instalments of purchase price, under the agreement; secondly, the indirect interest in the chattel or personal property through the interest of the owner, lessor or supplier. This is the ‘chattel’ aspect of the term chattel paper. Chattel paper is, therefore, a kind of halfway house between a pure intangible (such as rights under a contract) and a direct interest in the tangible personal property itself.
A PPS lease
The third type of deemed security interest is a PPS lease. A PPS lease is essentially a lease or bailment of serial numbered goods (such as motor vehicles, aircraft or watercraft) for a period of more than 90 days or a lease of other personal property (such as a computer) for more than one year from a person who is regularly engaged in the business of leasing or bailing that personal property. Even a lease for an indefinite term or for a term that could, with extensions or holding over periods, last for more than 90 days, or one year, as the case may be, will be classified as a PPS lease.
The final type of deemed security interest is a commercial consignment. Under this type of arrangement a consignor delivers goods to a consignee for the purposes of sale. The consignee does not own the goods but must account to the consignor for sales.
It is interesting to note that none of these four different types of deemed security interests would have been registrable on the Australian Securities and Investments Commission Register of Charges but they are all registrable under PPSA 2009. A failure to register these deemed security interests could result in a loss of priority. Moreover, a person who purchased goods that are subject to an unregistered deemed security interest could take a clear title.
One of the main tasks for lessors and suppliers of personal property is to review their documents to determine whether they create deemed security interests that require registration under PPSA 2009.
For further information about PPSA 2009, please contact:
|Dr James O’Donovan||Claire Petersen|
|Special Counsel||Senior Associate|
|9288 6804||9288 6746|