Many mortgage lending clients have asked me what they need to do to prepare for the Personal Properties Securities Act 2009 (Cth) so far as fixed and floating charges are concerned.
Will fixed and floating charges survive?
The PPSA does not prevent or significantly restrict fixed and floating charges.
The PPSA includes charges created under the Corporations Act in its reach, and they are covered by the terms of the Act.
The Corporations Act is being amended under the Personal Property Securities (Corporations and Other Amendments Act) 2010 and the Personal Property Securities (Corporations and Other Amendments Act) 2011 to harmonise it with the Personal Properties Securities Act (including in relation to fixed and floating charges), which is a further indication that the PPSA applies to such charges.
Do we need to update our security documents?
There is no set form for security agreements under the PPSA. Accordingly the typical fixed and floating charge will need only minor changes in wording (reflecting, for example, the fact that the charges will not be registered with ASIC under the Corporations Act but instead be registered in the PPSR under the PPSA.
Section 339 of the PPSA removes the need for parties to change terminology in fixed and floating charge agreements as it deals with the construction of references to fixed charges and floating charges in other laws and in security agreements, and translates them into the language of the PPSA. Thus parties can continue to refer to fixed and floating charges, and it will be clear what this means in PPSA terms.
What gets registered?
Under the PPSA, the security agreement itself is not registered, but rather a “financing statement”, being a document the lender can prepare itself that merely summarises key points of the security agreement. Thus unlike Real Property Act mortgages which need to be in registrable form the security agreement can be in any format.
When does the new regime begin?
The key date for the transitional provisions in the PPSA is the “Registration Commencement Time”, which by virtue of s 306 of the Act is 1 February 2012. This is also the date when the new register will be set up, and the date in which the changes to the Corporations Act under the two PPS(C&OA) Acts are due to commence. For practical purposes therefore the changes commence on 1 February 2012.
In summary, the implementation of the PPSA is likely to have little if any effect on the entry into fixed and floating charges or their form. There will be a new register for those charges and a new “financing statement” form the lender will have to fill out to effect that registration, but that is not something that needs to be signed by the borrower or even be in existence at the time the charge is entered into (although it should be created immediately afterwards so that registration can occur as soon as possible).