In brief – PPS will encompass goods, equipment, temporary works and intellectual property licences
The new PPS regime will affect multiple parties in the construction industry, including principals, contractors, subcontractors, design consultants and D&C contractors.
Delay of PPS commencement not unwelcome
The new PPS regime which was due to commence on Monday 31 October 2011 has now been deferred until at least 30 January 2012.
Importantly, this gives those in the construction industry who will be affected by the new system more time to consider how the implementation of the new single register of all "security interests" affecting personal property will affect their business and the way it operates.
The new PPS regime replaces all previous state and territory laws regarding security held over personal property with one national on-line system for registration under the PPS Register, which will be available to the public. It provides a rule based system for determining who has the best claim on personal property. It overturns centuries of common law based on the concept of title.
What is a security interest?
A security interest under the new PPS regime is any interest over personal property that in substance secures payment or performance of an obligation.
If you are a principal, contractor or subcontractor in the construction industry, the new PPS regime will affect:
- your rights regarding ownership of goods and equipment including temporary works
- your entitlement to recover goods and equipment in circumstances of insolvency
- your ability to exercise rights over the use and disposal of equipment where you elect to step in and take work out of the contractor or subcontractor's hands
Retention of title clause replaced by registered security interest
If your business involves the supply of goods, it is likely that your standard terms and conditions contain a retention of title clause which provides that ownership of the goods does not pass until payment has been made.
Under the new PPS regime, these retention of title clauses are now deemed a security interest which must be registered on the PPS Register for your rights to the goods to be protected in the event of insolvency or against third parties. In the most common case, you must register your interest in the goods before they are delivered into the possession of your customer.
Where your business involves the lease or hire of equipment for use as temporary works such as scaffolding, formwork, demountable buildings and lighting towers, your entitlement to retain ownership over those goods may now be deemed a security interest which must be registered on the PPS Register in order for it to be protected.
If either the principal, contractor or subcontractor on a project becomes insolvent, your rights to recover your temporary works may be lost to either a liquidator or a secured creditor such as a bank if you have not registered your security interest over that equipment on the PPS Register. This may be the case even if you are the legal owner of the temporary works.
Insolvency and step-in rights under the PPS regime
Many principals and contractors will ensure that their agreements include a provision entitling them to step in and take work out of a contractor or subcontractor's hands in the event of a default and to use and/or dispose of the equipment of the contractor or subcontractor to complete the works.
These step-in rights are deemed a security interest under the new PPS regime and must be registered for those rights to have effect on a project.
Intellectual property licences captured by the PPS regime
Design consultants and D&C contractors will also need to address how the new PPS regime will affect revocable intellectual property licences granted by the consultant or contractor to the principal for the period of the project. Intellectual property licences are captured by the new PPS regime and also deemed a registrable security interest.
Four things you can do to get ready for the PPS
- Identify which existing and future projects your company is engaged in involving potential security interests which need to be registered on the PPS Register.
- Consider whether your standard terms and conditions need to be amended to protect your interests under the PPS regime. This may include inserting provisions which impose a requirement on your contractors and your contractors' subcontractors to register any potential security interest they hold. This can help protect your project from disruption by an insolvency down the line.
- Designate personnel within your organisation to be responsible for identifying and registering relevant security interests and managing the process internally. It will be important to understand how the PPS Register works, so that when your company wishes to purchase equipment, you can easily do a preliminary check of the Register to make sure that the equipment is unencumbered.
- Keep an internal register which is easily accessible by all your staff, such as a central database or an intranet site, of all PPS interests around each project, so that knowledge is not lost when people move on.
The PPS is coming, ready or not
The operation of the Act will be immediate for new interests but there is a transition period which applies to existing interests, enabling companies to migrate their existing interests onto the PPS Register.
If your security interest isn't registered, the PPS Act 2009 provides a regime for determining who has priority if there are competing security interests over the same personal property. However, if you have not registered your existing security interests on the PPS Register by the time this "migration" grace period ends, your rights to the property concerned will fall to the end of the queue.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2020.