Implementation of the Personal Property Securities Act 2009 (PPSA) was set to commence on 31 October 2011. However, there is a degree of uncertainity as to the commencement date due to some difficulties which were encountered during the User Acceptance Testing of the web interface. In the meantime, it is important that businesses consider what steps they need to take to ensure they are ready.
One aspect of the scheme relates to what we traditionally know as fixed and floating charges. This legal concept will disappear under the new rules and be replaced with a new set of requirements.
Pre-PPSA Fixed & Floating Charges
A fixed charges is a charge over the company’s assets preventing the assets being dealt with without the chargee’s consent.
A floating charge is one that floats over the property until it crystallises. Crystallisation usually occurs at a time specified in the instrument creating the charge and is usually when the chargee takes steps to realise the security. The charger is usually free to deal with the assets the subject of the charge, eg. trading stock and book debts.
Post-PPSA Fixed & Floating Charges
Under the PPSA, the concept of a fixed charge will be replaced with a ‘non-circulating asset’ and a floating charge will be replaced with a ‘circulating asset’. These provisions have been introduced to deal with pre-PPSA security agreements and legislation that makes reference to fixed and floating charges. The provisions in relation to circulating and non-circulating assets are expected to have less relevance over time, as the PPSA provides an alternative to reliance on lenders securing their interests by obtaining signed fixed and floating charges.
Under the PPSA it is intended that all security interests that are granted are effectively granted as a fixed charge.
The PPSA does not expressly provide for a fixed and floating charge. What we used to call a charge, will simply be a PPSA “all assets” security interest attaching to property (subject to the lender/owner taking steps to ensure that they have achieved ‘attachment and perfection’ under the new Act).
The property, secured under this type of security interest, will be described as “all present and after acquired property”.
The secured party and the grantor must agree the extent of the grantor’s ability to deal with the collateral without the secured party’s consent.
Current documents granting a fixed and floating charge may not be the most effective documents to use to obtain this type of a security interests because the concept will cease to exist and floating charges will become a security interests in any event.
Rather, it would be more effective to use a general security agreement which would:
- grant a security interest over “all the company’s present and after acquired property”;
- require serial numbers for any serial number registrable personal property (intellectual property, motor vehicles, etc.) so that the extra benefits of serial number registration under PPSA are available (to ensure the security interest is perfected)
For further information in relation to the PPSA or to attend a seminar we are holding on Thursday 8 September at 8.00-9.00am on the steps and processes that need to be taken to maximize the benefit of these reforms, please contact Krystiana Conomos.