Implications for suppliers (and their financiers) exporting goods into Australia under the Personal Property Securities Act 2009 | Practical Law

Implications for suppliers (and their financiers) exporting goods into Australia under the Personal Property Securities Act 2009 | Practical Law

This article is part of the PLC Global Finance November 2010 e-mail update for Australia.

Implications for suppliers (and their financiers) exporting goods into Australia under the Personal Property Securities Act 2009

by Ian MacKenzie and Nigel Clark, Minter Ellison
Published on 30 Nov 2010 • Australia
This article is part of the PLC Global Finance November 2010 e-mail update for Australia.
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Suppliers who export goods to businesses in Australia will be directly affected by the Personal Property Securities Act 2009 (PPSA) and from May 2011, conditional sale agreements that meet the PPSA's "in substance" definition of security interest (by securing payment of performance of an obligation to the seller) will be treated as security interests.
Suppliers who export goods to businesses in Australia will be directly affected by the Personal Property Securities Act 2009 (Cth) (PPSA).
From May 2011, conditional sale agreements that meet the PPSA's 'in substance' definition of security interest (by securing payment or performance of an obligation to the seller) will be treated as security interests. Sales of goods on retention of title terms will therefore meet this definition. If the goods are supplied subject to any form of non-land related security arrangement (such as a retention of title arrangement, for example), then depending on the location and nature of the goods and the location of the grantor, the PPSA will apply. This means that suppliers of goods to Australian customers on these terms will need to comply with the PPSA's requirements in order to protect the priority of their security interest in those goods.
Financiers to such suppliers will also need to be cognisant of these PPSA implications so that they can include appropriate covenants in facility documents. This will ensure that borrowers are able to protect their retention of title security interests if goods are being supplied on such terms to Australian customers comprises a material part of the borrower's business.

When the PPSA applies

Generally, the PPSA will apply in the following circumstances:
  • If the grantor of the security interest (i.e. the purchaser) is an Australian entity.
  • If the goods are located in Australia when the security interest attaches to the goods.
In these circumstances, the PPSA will apply irrespective of the location of the secured party (for example, the supplier).

Perfecting security interests

In the context of goods exported to Australia, there are specific provisions of the PPSA that apply to the "perfection" of security interests. These provide that:
  • The validity perfection and effect of perfection of a security interest will be governed by the PPSA if at the time of "attachment" of the relevant security interest, it was:
    • reasonable to believe that the goods would be moved to Australia;
    • at the relevant time, the goods are located in Australia.
  • For rights evidenced by letters of credit, the validity of that security interest will be governed by the PPSA if:
    • the security interest has attached;
    • the grantor of the security interest is located in Australia at the time of attachment or the secured party has possession or control of the property.
If the supply arrangement falls into any of the above categories then, if the supplier is to preserve their priority over the interest, they will need to perfect the security interest by lodging a financing statement on the Personal Property Securities Register.
In situations where goods are located outside Australia at the attachment time, a security interest will be considered perfected until the goods become located in Australia so long as, before the goods arrive in Australia, the security interest:
  • Is effective.
  • Is enforceable against third parties.
  • Has been perfected and/or registered in the previous jurisdiction (if required by the law of that jurisdiction). This means that, for example, in other PPSA jurisdictions like Canada and New Zealand, a supplier of goods on retention of title terms would have to perfect its security interest (most likely by registering a financing statement) in that jurisdiction.

Effect

If the above criteria are satisfied, the PPSA affords the security interest temporary perfection once the goods arrive in Australia until the earlier of:
  • 56 days after the goods arrive in Australia.
  • 5 business days after the secured party has actual knowledge that the goods have arrived in Australia.
Previous updates have discussed the meaning and importance of concepts like "attachment" and "perfection" under the PPSA. In summary, perfection (or non-perfection) of a security interest is crucial in determining the outcome of a priority dispute between two security interests (which could arise, for example, between the interest of a supplier of goods on retention of title terms and the secured financier of the purchaser of those goods).
The PPSA rules relating to "purchase money security interests" would also apply to retention of title security interests where all or part of the purchase price is secured. As we have explained in previous updates, these rules provide a secured party with 'super priority' over other security interests provided that the secured party adheres to the relevant provisions relating to timing of perfection of security interests.

Bills of lading

Finally, specifically relevant to export situations involving bills of lading, the PPSA provides that a security interest over goods that are in the possession or control of a bailee are automatically perfected as long as the security interest has attached to the goods. However, it is worth noting that the PPSA generally does not apply to an interest of a supplier who has shipped goods to a buyer under a negotiable bill of lading, unless there is evidence of a specific intention to create a security interest in the goods (i.e. unless the underlying supply arrangement is itself a security interest).
In summary, this means that suppliers of goods to Australian customers will need to register a financing statement on the Personal Property Securities Register, ideally as soon as possible, but certainly within the time frames prescribed by the PPSA to protect their interest in those goods.