How To Secure Your Loan, Credit Or Goods

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As a business if you are giving out a loan, you should always ask for collateral security in the form of an asset/s. The most common asset you can ask to give as security is the personal property owned by your business such as cars, boats, crops, intellectual properties etc.

For example you may hold a security interest over a car while a person pays off his car loan. In case of default in payment of the loan, you can take repossession of the car to recover the cost. Your interest in the personal property as a security for the loan dispensed by you amounts to personal property security interest.

Personal Properties Securities Act 2009 And Its Applicability

The Personal Properties Securities Act 2009 (Act) which commenced on 30 January 2012 applies to banks, lenders, financiers, leasing companies and businesses selling or supplying goods on credit to customers or by consignment. The Act introduced the concept of ‘security interest’. A security interest is an interest in relation to personal property that secures performance of an obligation or payment by an individual or a company.

Security interests could include interests that arising through fixed and floating charges, finance leases, mortgages, such as chattel mortgages (but excluding mortgages over land or water rights), hire purchase agreements, conditional sale agreements, pledges, conditional sale agreements incl. retention of title arrangements, commercial consignments etc.

How You Can Secure Your Loan Or Goods?

You need to comply with certain practical procedures in securing your loan or goods. These procedures include the following:

It is recommended that while giving out a loan, your sale terms should include a clause concerning “Retention of Title” (ROT). This will not only enable you to retain ownership in the goods until such time the buyer has made full payment for the goods but would also ensure your right to enforce ROT against your such buyer. A security agreement must be entered into between you and your buyer for compliance. The document incorporating the ROT arrangement should be in writing, signed by your customer, besides containing the description of the particular goods.

You should register the ROC arrangement on the Personal Property Security Register (PPS Register). The PPSR is the register containing details of security interests in personal. The PPSR is administered by the Insolvency and Trustee Service Australia (ITSA).

You should attach the security interest to the property in order to have an enforceable right despite the enforcement of any limitation. However before attaching such security interest, you need to ensure that the grantor has the power to transfer the rights in the property to you.

You can protect your security interest against third parties or creditors if such security interest is perfected. You can ensure perfection only if your security is attached to the goods, the interest is enforceable against the grantor and you have also registered the security interest on the PPS Register.

If your interest is not appropriately registered in the PPS Register, then the interest and security over the property may be lost through a subsequent transaction. In the event your financing statement i.e., form 1 Cas provided in the PPS Register on Personal Property Security website does not contain the details as set out by the Act, your financing statement might be held to be seriously misleading thereby rendering the security interest defective.

Legislation Relating To Personal Property Securities

The personal property securities reform has drastically changed the current law and practice relating to the security interests over assets. By virtue of this reform various Commonwealth, State and Territorial laws are harmonized into a national scheme for the treatment of security interests in personal property. The Australian states have referred constitutional power to the Commonwealth to support PPS reform by passing the following legislation:

New South Wales – Personal Property Securities (Commonwealth Powers) Act 2009;

Queensland – Personal Property Securities (Commonwealth Powers) Act 2009;

South Australia – Personal Property Securities (Commonwealth Powers) Act 2009;

Victoria – Personal Property Securities (Commonwealth Powers) Act 2009;

Tasmania – Personal Property Securities (Commonwealth Powers) Act 2010; and

Western Australia – Personal Property Securities (Commonwealth Powers) Act 2011.

Feel free to contact our team of experts at Owen Hodge Lawyers to guide you in matters relating to securing your loan, credit or goods.

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