Personal Properties Security Act 2009

THE PERSONAL PROPERTY SECURITIES ACT 2009

This Act was passed by the Senate on 26 November 2009 and received royal assent in December 2009. It is proposed to commence operation by May 2011.

The PPS regime will produce wide ranging changes to corporate insolvency law and practice.

1. The Corporations Register will be superseded by the national PPS Register and the particulars on the Corporations Register will be transferred to the PPS Register. While PPS will not abolish floating charges, it will render the distinction between fixed and floating charges irrelevant so far as priorities are concerned.

2. The concept of a fixed charge will be replaced by the concept of a security interest that has attached to an asset that is not a circulating asset.

3. The concept of a floating charge will be replaced with the concept of a security interest that has attached to a circulating asset. In other words, a statutory fixed charge over circulating assets. Under this charge, the debtor can deal with trading stock and other circulating assets in the ordinary course of business, and the security holder's interest will be protected by the extension of the security interest to the proceeds of such assets.

4. Under the general law, a floating charge becomes a fixed charge when it crystallises by operation of law or through some act of intervention by the chargee, such as the appointment of a receiver and manger, or an entry into possession. This concept of crystallisation will no longer be relevant under PPS. A floating charge, like a fixed charge, will attach to the charged assets when the requirements of section 62 are satisfied or when the security agreement provides that attachment occurs.

5. The PPS will remove the uncertainty about the effect of fixed and floating charges over book debts and retention of title clauses in relation to mixed goods, and the proceeds of sub-sales. This is a good thing.

The scope of the PPS Act

PPS redefines traditional concepts of rights in personal property. Although it does not deny that the owners of the collateral remain its owners, it provides that the owner's security interest under the legislation may lose priority to another security interest in certain circumstances. It is irrelevant to consider whether the title is legal or equitable and whether a party has actual or constructive notice. Under Section 57, registration on the PPS Register is not notice.

A case illustrating these principles is that of Graham-v-Portacom New Zealand Ltd [2004] 2 NZLR 528. In that case, Portacom leased five portable buildings to NDG Pine Ltd (in receivership) (NDG). The buildings were delivered to NDG and NDG granted a debenture to its bank. The bank's debenture was registered under the PPS but Portacom did not register its interest in the buildings. NDG became insolvent and its Bank appointed receivers and managers to NDG's assets. The receivers claimed that they had the right to sell the buildings and they sought directions from the court as to their powers and the respective priorities of the parties.

The New Zealand High Court held that the rights of NDG as lessee of the portable buildings were not confined to possessory rights. It had sufficient rights of ownership under the New Zealand Personal Property Securities legislation to confer a security interest on the bank in priority to the rights of the lessor, Portacom. In other words, NDG could grant a security interest in the portable buildings themselves not just its leasehold interest. NDG was treated as the owner of the buildings for registration and security purposes and in the result, both NDG's leasehold and proprietary interests in the buildings were subject to the bank's security interest which took priority over Portacom's unperfected security interest. It followed that the receivers had power to sell the buildings. The bank's security interest prevailed over Portacom's ownership rights because Portacom had not taken steps to perfect its security interest by registration. This case sends out a clear warning to owners that they cannot sit on their ownership rights and ignore the PPS legislation.