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Connexus : Issue 36
Migrating your security interests The Attorney-General's Department has published a list of about 40 existing registers -- including the Australian Securities and Investments Commission's company charges registers and state- based REV/VSR registers -- that will be automatically migrated to the database in October. Credit providers will then be able to verify the accuracy of the registers. Some documents and transactions are not currently regarded as 'security' and not registered or registrable on any existing registers (such as conditional sale contracts, hire-purchase agreements, certain leases and commercial consignments). These will need to be registered to achieve 'temporary perfection' during a 24-month transition period after the register's commencement, and some special rules will apply. There is some concern in the mutual sector and among financial institutions more broadly that, in the days after it goes live, the register will be stormed with many thousands of currently non- registrable security interests, leading to a compromising of the system. The Attorney- General's Department has publicly assured stakeholders that it will be unnecessary to storm the register, because the 24-month transitional period after October will allow ample time for non-migrated existing securities to be registered. The financing statement The usual way that credit providers will 'perfect' their security interest will be to register a financing statement which will contain: • Secured party details • Grantor of security interest details • Addresses and identifiers for giving notices • Collateral details • Expiry date Credit providers may lodge a financing statement provided they have reasonable grounds for believing they are, or will become, a secured party in relation to the specified collateral. This means that, in practice, it will be possible for lenders to register a financing statement before the signing or completion of a credit transaction and the 'attachment' of the security. This will ensure the lender's priority. If a transaction does not proceed, however, the lender will have an obligation to correct the register. There are alternative ways to perfect a security interest in personal property which don't involve a PPS registration, such as taking possession or taking control. Special rules for ADI accounts ADI accounts are one type of property where control, rather than registration, is the strongest way to perfect your security interest. If, for example, you are a mutual ADI with a security interest over deposits held with you, and you have the authority to direct the disposition of funds from that account, without the consent of the person providing the security interest (usually but not always the depositor), then your priority ranks ahead of another security interest, even where that other interest was first in time. Conversely, if you are an ADI with a security interest in a deposit account held with another ADI, you may wish to protect your interest by making it a condition of whatever security you take that only the account holder can direct disposition of funds from the account. Special rules for motor vehicles The special PPS rules for motor vehicles aim to ensure that a buyer or lessee of a motor vehicle can take the vehicle free of any security interest granted by the seller to a financier. One rule says that the vehicle must be one described by a serial number, and any prior security interest was not shown on the PPS register a day and a half before the sale or lease. Another rule is that consumers don't have to search the register if they are buying or leasing from a licensed motor vehicle dealer. Priority disputes General priority rules in the PPS Act determine which of two or more secured parties is entitled to seize the collateral when one or more of them becomes entitled to do so under a security agreement. There are also special priority rules applying to bailments, negotiable instruments, letters of credit, ADI accounts, crops and purchase money security interests (PMSIs). -- Guy Griffin is a senior lawyer at Abacus Legal. New terms Users of the Personal Properties Securities Register will need to become familiar with some new terms: Security interest Any interest in personal property created by an agreement that secures a payment or the performance of an obligation (such as a chattel mortgage, bill of sale, debenture, hire-purchase agreement, charge, or retention of title). Collateral The property over which a security is taken (could be a motor vehicle, crops, shares, licences). Attachment Your security interest attaches to the collateral when you make a loan, the borrower signs the loan document or (more uncommonly) you take possession or control of the collateral. Perfection Makes your security effective and enforceable against third parties, usually achieved by registration, taking control or possession, or 'temporary perfection'. Ownership is irrelevant to the rules about perfection. A security perfected by control has priority over a security interest perfected by any other means. Special priority rules These will apply to security interests in certain things such as ADI accounts, purchase money security interests (PMSIs), letters of credit, bailments and certain types of lease. In some cases where these special rules apply, registration may not protect priority. Financing statement What you will register with the PPS Registrar to record your security interest. 37 connexus www.abacus.org.au LEGLISATION