The PPSA and the energy and resources industry

Practical Law UK Legal Update 1-504-2768 (Approx. 3 pages)

The PPSA and the energy and resources industry

by Nigel Clark, Gehann Perera, Minter Ellison

Differences due to State rights

While the PPSA expands the scope of property over which security interests can be registered, it is expected that it will not apply to certain mining interests such as licences and leases. In order for the PPSA to apply to these types of mining interests, legislative power will need to be referred from the various states to the federal government. The PPSA operates such that if States declare that certain State conferred rights, licenses and authorities are not personal property, they will fall outside the scope of the PPSA. To date, Queensland, New South Wales and Victoria have declared that various mining interests are not personal property and therefore the PPSA will not apply. The Tasmanian Parliament is currently considering Bills which will have the same effect. However, despite passing referring legislation, South Australia has not yet declared that mining interests are not personal property. Western Australia has neither passed legislation nor does it have any Bills in Parliament related to the PPSA, however we expect that they will also declare that certain mining interests are not personal property for the purposes of the PPSA.

Key changes

Some of the key areas where the PPSA will impact on the energy and resources sector are:

New grantors.
The types of grantors over which security interests can be registered will be significantly expanded. Generally, security interests over personal property can only be registered on the Australian Securities and Investments Commission register of charges where the grantor is registered under the Corporations Act 2001 (Cth), although there are some other exceptions such as security interests over motor vehicles. However, under the PPSA, security interests could be registered over:
- individuals;
- partnerships;
- bodies holding an Australian Business Number (such as a joint venture); and
- non-Australian bodies if the property the subject of the security interest is located in Australia.
Substance over form.
The PPSA has taken an approach of substance over form and accordingly a number of interests previously not deemed to be security interests will now comprise security interests. This means that people need to ensure that they have adequately protected their interest in personal property by registering a security interest on the PPSR. Interests that will become registrable include:
- the right of a lessor in property provided on hire purchase or leasing arrangement;
- the right of vendors of property who sell the property on deferred payment terms. This sort of interest is called a purchase money security interest and has 'super priority' over other security interests under the PPSA; and
- the suppliers of property with retention of title arrangements.
Many lenders who have dedicated teams to transitioning to the PPSA regime may also need to educate their borrowers regarding these issues as a lender's rights in personal property may be lost if its borrower does not properly secure its interest in that personal property.
Dilution provisions in JVs
Joint venture agreements in the energy and resource sectors often contain dilution provisions allowing one party to dilute the interests of another if certain requirements are not met (for example; if capital calls are not met). As a dilution provision in an agreement grants a person the right to acquire the personal property (such as a joint venture interest) of another party if that person fails to perform an obligations (such as the payment of called sums), it is arguable that these interests will now need to be protected by registration on the PPSR.

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