The Personal Property Securities Act 2009 (Cth) and the corporate transaction landscape

The Personal Property Securities Act 2009 (Cth) and the corporate transaction landscape
By now you will have heard that the much awaited, and not so eagerly anticipated, Personal Property Securities Act 2009 (Cth) (PPSA) and related regulations commence in October 2011.

The PPSA will represent a major structural reform to the way that security interests (mortgages, charges and more exotic security interests) are regulated, but what impact will it have on M&A and the corporate transaction landscape?

The PPSA is not just relevant for financiers and insolvency practitioners. It will affect corporate transactions whenever a company buys or sells assets, supplies or receives goods, takes on or grants leases or bailments of goods or lends or borrows money.

Come October you should be aware of the following:

• if shares are to be compulsorily acquired under a takeover offer or pursuant to a scheme there may be an impediment to clear title in such cases. This is due to the fact that a bidder may not be able to take advantage of the carve out that an investment instrument or an investment entitlement will be free from a security interest provided that the acquisition is a consensual transaction;
• bidders in private treaty M&A transactions should be encouraged to search the PPS Register to determine whether there are any substantial impediments to clear title of the shares or assets they are acquiring;
• the existing registration system for charges will be replaced by way of registration of a financing statement – which is a notice of the security agreement. The new system also applies to other forms of security interests, including security interests not previously required to be registered. Unlike the existing system in relation to the registration of charges, the actual security agreement creating the security interest does not need to be lodged on the PPS Register, only the financing statement. This means that purchasers will need to sift through more information (because of the extended reach of the types of security interests that will be capable of registration), but this information will potentially be of a lesser quality (because the underlying security agreements themselves are not required to be lodged on the PPS Register);
• in a sale agreement new warranties should be sought that all security interests capable of registration under the PPSA have been so registered. This is because a failure by a vendor to avail itself of the mechanisms under the PPSA to perfect securities it holds from its own customers will materially affect the value of the business it may be seeking to sell to a purchaser;
• purchasers should consider what security interests should be registered where a refundable deposit has been paid in advance of completion (which may ultimately fail);
• vendors need to think about perfecting security interests where an element of the purchase consideration payable by the purchaser is deferred. Traditional security, such as a share mortgage, to secure any unpaid purchase price under a sale agreement will become a specific security agreement/deed, and should be registered on the PPS Register.

Whilst the PPSA may not fundamentally change the way we transact, advisers will need to be aware of the implications of the new regime and have safeguards in place to make sure their clients are protected.

Partner: Dan Marks