AITKEN WILSON LAWYERS > Current Issues - Business and Companies

Overview

Retention of title clauses are widely used in a large variety of industries that supply goods to customers.  For businesses that sell or lease goods but retain title to those goods in their terms and conditions, or that use their property as security when raising capital, their title to those goods has generally been sufficient to ensure that they have priority in those goods ahead of any third party.  That is of course useful in case the other party goes into liquidation or for recovery of the goods for non-payment. For a number of years, however, there has been talk of reforming the Personal Properties Securities law.

Currently in Australia , the use of personal property as security has been considerably limited due to complexities arising from the differences between State and Territory legislation and registration systems. To address these issues, the Personal Property Securities Bill 2008 (“the Bill”) was released on 16 May 2008 for public consultation by the Federal Attorney-General’s Office.

Changes

The fundamental purpose of the Bill is to establish a national system for the registration of security interests in all personal property, which can include tangibles (eg cars, boats and machinery) and intangibles (eg shares, intellectual property and contractual rights). Land and interests in land, however, do not fall within the meaning of personal property and therefore will not be affected by the reforms. The effect of such a registration system is that if a business does not register its interest in the property being provided as security, it may lose its ownership priority over that property to a third party with a higher priority.

The fact that the business may have ownership over those goods will no longer be a relevant consideration under the proposed system. These reforms will add a further onus on businesses to ensure that their interests in their property are registered. However if the business registers its interests, it will significantly improve the ability for business to use their property as security to their advantage.

Recommendations

So how can you ensure that your business is not adversely affected by these reforms? The most important thing you should be doing is starting to plan early for the transition to the new registration system, even though it may be a year until the laws are passed. The best way to do this is to obtain advice about what changes your business can and should implement to ensure compliance with the system. For example, it may be necessary to ensure that your business’ documentation (such as contracts) requires other parties to do everything necessary so that your priority in the property is not compromised. Failure to register the property could have serious adverse consequences, leaving the property open to competing ownership claims from third parties.

Please contact us if you would like to speak to a solicitor about what effect the proposed reform may have on your business and what you can do to ensure your interests are protected.