The new PPS regime and the construction industry

The new Personal Property Securities (PPS) regime is here. It is expected¹ that as of Monday 31 October 2011, a single register of all "security interests" affecting personal property will come into operation, changing the way many businesses in the construction industry operate.

The new PPS regime replaces all previous state and territory laws regarding security held over personal property and replaces it with one national on-line system for registration under the PPS Register which is available to the public.

A security interest under the new PPS regime is any interest over personal property securing payment or performance that is created by an agreement evidenced in writing (a security agreement).

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
• entitlement to recover goods and equipment in circumstances of insolvency, and
• ability to exercise rights over the use and disposal of equipment where you elect to step-in and take work out of the contractor/subcontractor's hands.

Retention of title clauses - replaced

Where 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 those retention of title clauses are now deemed a security interest which must be registered on the PPS Register in order for your rights to the goods to be protected in the event of non-payment or insolvency.

Likewise, where your business involves the lease or hire of equipment for use as temporary works such as scaffolding, formwork, demountable buildings, lighting towers etc your entitlement to retain ownership over those goods is now deemed a security interest which must be registered on the PPS Register.

In the event of either the principal, contractor or subcontractor on a project becoming insolvent, your rights to recover your temporary works will be lost to either a liquidator or secured creditor where 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 the new 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/subcontractors hands in the event of a default and to use and/or dispose of the equipment of the contractor/subcontractor in order to complete the works.

Those 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 new 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/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.

What should you do now?

1. Identify which existing and future projects your company is engaged in which involve potential security interests which will need to be registered under the new PPS regime.
2. Consider whether your standard terms and conditions will need to be amended to best protect yourself under the new PPS regime. This may include inserting provisions which impose a requirement on your contractors and your contractors' subcontractors that they register any potential security interest they may hold. This will protect your project down the line from the potential for disruption by an insolvency.
3. Appoint designated personnel within your organisation to be responsible for the registration of relevant security interests and manage the process internally. It will also be important to understand how the PPS Register works to ensure searches can be easily undertaken in circumstances where your company wishes to purchase equipment to ensure that that equipment is unencumbered. 
4. Keep a register internally either through a central database or intranet site of all PPS interests on a per project basis for easy access by all staff so that knowledge management is not lost going forward.

A two year transition period will start at the commencement of the new PPS regime whereby companies can migrate their existing interests onto the PPS register. Where your security interest isn't registered, the PPS Act 2009 provides a regime for determining which entity has priority where there are competing security interests over the same personal property. However, when this "migration" grace period ends, and you have not registered your existing security interests on the PPS register, your rights to the property concerned will fall to the end of the queue.

If you have any questions in relation to any of the issues raised above, please contact Nick Crennan, Partner on 02 8281 4608 or Lindsay Prehn, Senior Associate on 02 8281 4525.



 

1 Confirmation of the start date for the new PPS regime is to be made by the Attorney-General, Robert McLelland in September 2011. It has recently been advised that the start date may be delayed due to testing issues with the online PPS Register.