If you bought something on finance recently, chances are that you have created a “security interest”. The laws affecting security interests are about to change.
The Personal Property Securities Act (the Act) is due to begin operation in October. It will establish a national system for the registration of security interests against almost all types of property except land, fixtures and water rights. It will apply to both physical assets like cars, animals and trading stock and non-physical assets like company shares, franchises and business names.
As well as traditional securities, the Act will also cover transactions that previously have not been treated as security interests. This will be a big change for businesses that enter into:
- sale ageements which allows possession to personal property to be given to the purchaser before payment (this is often called a Romalpa clause)
- operating leases (other than short term arrangments such as car rentals);
- finance leases;
- commercial hire purchase agreements;
Currently these type of interests are not necessarily recorded. When the Act commences these interests will need be registered if you want to be sure your interest will have priority against other claimants. It will also be essential that notice of the security interest is recorded accurately on the Personal Property Securities Register as a defective notice may invalidate the registration.
Without a valid registration the interest you hold in the personal property may be lost. For example, under the current law, legal title cannot be passed by someone who does not own that property. Under the new Act, if an interest is not registered, a person who has possession but not ownership of the personal property can validly sell legal title to it to a bona fide purchaser for value without notice.
This article provides general information only about the Act. Businesses affected by the new law should obtain specific advice. Robertson Hyetts Solicitors can provide tailored solutions for your business.
For further information please contact Janelle Brown.