personal property security reform – what you need … · allens is an independent partnership...
TRANSCRIPT
1Allens is an independent partnership operating in alliance with Linklaters LLP.
Personal Property Security reform –what you need to know
Karla Fraser, Paul Brittain & Sarah Kuman
Port Moresby, April 2015
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Overview
• Objectives of the reform and Current Status• Key concepts under the PPSA• PPSA in practice• The proposed register• What do you need to do to be ‘PPS ready’?• Questions
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Objectives (a recap)
• Explanatory memorandum: ‘to promote commerce’• Codify and simplify law• Single straightforward registration of security instruments• Consistent ‘in substance’ approach regardless of form• Consistency with US, Canada, Australia, NZ and others
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Current Status – April 2015
• Personal Property Security Act 2011 – enacted but not yet commencedLegislation
• Registry provider selected – Investment Promotion Authority• Registrar of Companies to be Registrar of PPS Register• Some testing in progress
Registry
• Draft to be released for public comment shortly (May 2015)Regulations
• Treasury has flagged intent to commence in September/October 2015Commencement
• Existing security interests – six month transition period to register• New security interests – registration to commence straight awayTransition
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Introduction to the PPSA
• widgets: who has priority? product: who has priority?
• old law – owner has the best title (supplier on retention of title terms)
• new law (PPSA) – retention of title, leases and charges are all security interests – PPSA priority rules apply to determine who has priority to
product and proceeds of sale
Supplier
Manufacturer
Bank (1)
supplies widgets on retention of title terms
All assets fixed and floating charge
Retailer
Bank (2)
All assets fixed and floating charge
incorporates widgets into product and sells on retention of title terms
leases product to customer
Customer
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What is a PPS security interest?
every transaction thatin substance
creates a security interest
a security interest meansa legal interest in personal property
that secures payment or performance of an obligation Definition: ‘goods, chattel paper, investment property, a document of title, an instrument, money or an intangible’
(almost everything - except land and certain statutory interests) It includes:
tangible goods, vehicles, hard cash, inventory intangible things: intellectual property, contractual rights, bank accounts,
trade debts, investment property (shares, units)
Functional definition – it includes: retention of title arrangements hire purchase commercial consignments finance leases ……………and more
(without regard to its form and without regard to the person who has title to the property).
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deemed security interests
• the Act applies to certain transactions, even if they do not ‘secure’ anything
1. transfer of an ‘account’ or ‘chattel paper’2. a lease for a term of more than 1 year3. a ‘commercial consignment’
a book debtdocument which acknowledges a debt
+ lease/security interest in goods
includes leases with:• indefinite term or • options, renewable terms, in aggregate > 1 year• possession >1 year (even if term < 1 yr)
delivery of goods for sale to a person (consignee) who deals in goods of that kind (but not auctioneers)
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What is a PPS security interest?
‘in substance’ security interests
e.g.retention of titlehire purchasefinance leases
deemed security interests
- transfer of account or chattel paper
- commercial consignment- leases >1 year
traditional security interests
e.g.:- fixed charge- floating charge- chattel mortgages- pledges/liens
exclusionsnegotiable bills of lading - set-off - interests in land or payments in connection with land - transfer of unperformed contracts - transfers of remuneration for services - transfers of accounts for collection - sale of account or chattel paper as part of sale
of business – transfers of superannuation interests - excluded statutory licences (Mining Act; Oil & Gas Act)
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Key concepts – new terminology
Debtor Secured Party
‘security interest’ (in a ‘security agreement’)
over personal property(the ‘collateral’)
1. value is given, and2. Debtor has rights in collateral,
and3. one of
• possession, • control, or• signed security agreement
1. attachment, and2. one of
• possession, • control, or• registration
‘attachment’ ‘perfection’
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Key concepts – Security Agreements
• security agreement is needed, unless you have ‘possession’ or ‘control’
• PPSA requirements: must be ‘signed’ – physical signature, or other ‘process’
with intent to adopt or accept must provide description of collateral
o ‘described in manner that enables collateral to be identified’, or
o ‘all present and after-acquired property’, or
o ‘all present and after-acquired property, except’
limited ability to contract out of obligations
• no lodgement of agreement when registering – notice only
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Key concepts – Perfection
• Three ways to perfect: ‘possession’ ‘control’ (only deposit accounts / investment property) registration
• Three important consequences if you don’t: taking free – transferee for value without knowledge
takes free of unperfected security interest priority – unperfected security interest ranks after
perfected security interests liquidation – unperfected security interest subordinated
to interest of liquidator or trustee in bankruptcy
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Key concepts – Priorities under the PPSA
unperfected security interest
registered later in time
registered first in time
purchase money security interest (PMSI)
perfected by control
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Key concepts – Purchase Money Security Interests (PMSIs)
• PMSI – purchase-money security interest security interest to secure purchase price (eg retention of title) security interest given to person who provides value to enable
collateral to be acquired (eg acquisition financier) lessor – lease for term of one year or more consignor – commercial consignment
• generally, ‘super’ priority but (other than for inventory) only if perfected when debtor
receives possession, or within 7 days thereafter for inventory, in relation to the proceeds of sale of inventory, only
if certain notices are given in accordance with the PPSA
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Key concepts – Transition
• Commencement of PPSA expected to now be late 2015• Security interests:
arising under transaction concluded prior to date of commencement of PPSA (a ‘prior transaction’)
‘transitional notice’ registered within 180 days from commencement of PPSA
takes priority over security interests arising after commencement of PPSA
• After 6 months, lose priority to other perfected interests
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PPSA in practice – broad application
• Secured lending• Leasing• Manufacturing and supply chain• Construction• Mining, oil & gas
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Some scenarios…
• No: no interest in personal property – contractual only
Guarantees
• Probably not, unless there is identifiable collateral (ie money held in a segregated account)
Retention amounts
• Yes: NZ portaloo case – lease for a term of more than one year
Equipment leased by contractors
• Yes: NZ Mainzeal case
Step-in rights: principal taking over equipment
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Some more scenarios…
• Probably: dilution rights and purchase options secure performanceCross-charge needs to be registered in any event
Joint venture agreements or joint operating agreements
• No: no interest in personal property – contractual only
Performance bonds, letters of credit
• Yes: retention of title terms and leases for a term of more than one year• Make sure registration also covers future purchase orders/invoices/leases
Master Supply Agreements or Master Lease Agreements
• Yes, if lease is for a term of more than one year (or indefinite term)
Operating leases of office equipment
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The register
• Register of notices, not security agreements• Details required by the PPSA
• One notice can relate to one or more security interests
Debtor• identity• physical address
Secured Party• identity • physical address
Description of collateral
• ‘described in manner that enables collateral to be identified’, or
• ‘all present and after-acquired property’, or
• ‘all present and after-acquired property except for specified items’
Additional optional details
• Vehicle serial number
• Real property identification number
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The register
• Debtor authorisation: Registration must be authorised by debtor (before or
after registration) Signing security agreement is taken to constitute
authorisation• Timing: best before signing, or at least before debtor
draws down or takes possession of financed equipment• Term of registration:
Initial term designated by person registering Subsequent extensions are 5 years
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What the registry might look like
five year registration
term
brief Debtor details
brief Secured
Party details
Collateral Description
(note: shouldn’t be necessary to identify
or lodge the document)
21Allens is an independent partnership operating in alliance with Linklaters LLP. 21
What do you need to do?
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Where to start…
• Scoping Understand the PPSA Know your timeframes Develop a PPS plan Determine impact on business Implement plan
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Know your enemy
• Understand the PPSA (or find a lawyer who does!) Critical to assess risk to business Internal legal – key role as educator and spotter of risk
• Know your timeframes
Intended commencement date.• The PPSA applies to all new security
interests entered into after this date.• Existing security interests must be
registered within 6 months• Transition provisions cover the 180 day
transition period
December2011
June 2014
April / May 2015
September / October
2015
March / April 2016
Act passed
PPSA becomes law
2014 originally anticipated to be commencement time
<< Register developed >>Proposed
publication of Regulations
Transition period ends. All security interests must be registered or risk losing priority.
Transition period ends
Proposed start date
Transition period Full operation
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Develop a PPS Plan – the building blocks
• Educate (understand issues; stakeholder interest)
• Resource (project team / budget)
• Assess potential impact
• Risk / Reward Analysis (what to do, in what order and when)
• Implement: o Policies
o Processes
o Documentation
• Compliance; audit
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Your PPS plan
Educate
Resource
Risk Assess
Analyse Risk
Implement
Compliance
March / April 2016September / October 2015April / May 2015
Act is passed
December 2011
Proposed start date Transition period endsRegulations to be released
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Risk Assessment
• Identify potential ‘hits’ (risk) and quantify it in real terms• Start broad; focus in• Don’t half bake it – potential for large commercial losses• Remember:
it goes both ways (you may be ‘secured party’ or ‘debtor’) applies to all current and future transactions
• How? do it yourself (go it alone; or get someone to facilitate with
questionnaires and checklists) get someone in (secondees / contractor) send it out (focused audits and advice; arrangement specific)
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Risk Assessment
• What are you looking for?• Understand your position (perfection, priority)
Currently During transitional period After transitional period Will it (or should it) change; can you improve it? Should you worry about your customers exposure too?
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Risk Assessment
• Existing security interests identify existing security interests obtain/compile the details to complete registrations Complete registrations within 6 month transition
period• New security interests
identify transactions in your business that will give rise to security interests
implement policies and procedures for registrations be ready to go from commencement of Act
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Risk / Reward Analysis
• Technical risk (i.e. what might happen if you don’t perfect)• Analyse real, practical risk:
low value goods (administrative costs burden) high risk counterparties? threshold values (K5,000? K50,000? K1,000,000?)
• Prioritise Risk under Act Risk quantum Risk of delinquency
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Implementation and documentation
• Documentation Identify: standard security agreements in your
business, and update for PPSA Charges: cover assets in which debtor has rights Include: authority to register, contracting out of certain
PPSA obligations (eg notices), perhaps some terms• Policies
Perfection (Registration and Renewals) Releases Enforcement Role of internal counsel/external counsel
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Compliance / Audit
• Remember that you may also grant security interests contractual restrictions (negative pledges?) procurement activities – new policies and process registration monitoring – monitor and challenge (if
necessary) registrations; demand releases of expired interests
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PPS help!
Karla Fraser - Banking & FinancePartner+61 7 3334 3251+61 420 936 [email protected]
Paul Brittain - Banking & FinanceManaging Associate, Brisbane+61 7 3334 3203+61 411 255 [email protected]
Sarah KumanSenior Associate, Port Moresby+675 305 [email protected]