30/08/2011

In our previous July BLB Newsletter we provided a brief overview of the new Personal Property Securities Register (PPSR) to commence in October 2011.  In this article we continue our summary of some of the important changes and new procedures being introduced.

One important aspect of the PPSR that will impact many business financing transactions is the change to the floating charge that has, up until now, been registered with ASIC and appeared on the company register when searching through a company’s ASIC records.

A floating charge is a form of security taken by a financier over non-specific assets of a corporate borrower.  It often refers to stock in trade and work in progress so that the borrower can buy and sell those assets in the ordinary course of business without seeking the approval of the financier.  If the borrower defaults on the finance arrangement, then the floating charge crystallises and the financier can enforce the security by taking possession of the assets owned by the company at that point.

Once the PPSR commences in October 2011, a company charge will no longer be registered with ASIC, and over the next 2 years ASIC will “migrate” the existing charge information over to the PPSR.  The purpose of this is that after the transition period, all security interests over individuals and companies will be on the one PPSR and therefore one search will provide all the required information on a borrower.

The consequence, is that when the PPSR comes in, the finance transaction will be registered on the PPSR as a “security interest”.  Instead of referring to a “floating charge” the security interest to be registered on the PPSR is in the “circulating assets” of the corporate borrower.

Section 339 of the PPS Act states that:

“a reference to a floating charge over property is taken to be a reference to a security interest that has attached to a circulating asset”

A “circulating asset” of a company includes:

• inventory;
• an account that arose from providing service in the ordinary course of business;
• an account that is the proceeds of inventory; or
• a negotiable instrument.

Other assets of the company, including plant and motor vehicles are classified as non-circulating assets.

Once a finance transaction has occurred that includes a “security interest in circulating assets” it is important for the financier that the security interest be registered with the PPSR to ensure it has priority over later registered interests and it is enforceable against any third party.

Next month we will provide you with a summary of the issues on priority between security interests registered on the PPSR.

If you have any questions in regard to company charges or the PPSR, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.