The Personal Property Security Act 2011 (PPSA) is expected to commence operation in Papua New Guinea in the first half of this year. It is a significant legislative change that will affect many PNG businesses, says Paul Cullen.

Gadens Lawyers’ Paul Cullen

The new law will apply to all forms of property other than land, mining tenements and petroleum licences. Goods, crops, livestock, shares, receivables, contractual rights and intellectual property will be included.

There will be a single online register known as the Personal Property Security Registry (PPSR), which will register all security interests (a ‘security interest’ is any interest in personal property that secures a debt or an obligation).

‘It will place an enormous burden on affected businesses because they will need to manually re-register all of their existing security interests within the transition period.’

The new register will completely replace existing registers for company charges, chattel mortgages, hire purchase agreements and other securities affecting tangible and intangible personal property.

Once the PPSA legislation comes into force, affected businesses will have a 180-day transition period to re-register existing security interests on the PPSR, or risk losing priority.

No automatic migration

There will be no automatic migration of security interests from existing registers—such as the Companies Register—to the PPSR. It will place an enormous burden on affected businesses because they will need to manually re-register all of their existing security interests within the transition period.

Some interests, for which there is no current register, can also be registered once the legislation begins. For example, security interests created under retention of title arrangements, consignments and leases of goods will now be captured by the PPSA legislation.

Although not recorded on any existing registers, affected businesses will need to consider registering a notification on the PPSR before the end of the transition period.

No documents

The PPSR is not a document register. This means that no documents will be lodged on it. Instead, the PPSR will be comprised only of online notifications of security interests.

It will be the responsibility of secured parties to lodge a notice of their security interest on the PPSR, not the Personal Property Security registrar!

‘The effect of the legislative change is significant.’

Affected businesses include:

• banks, lenders and other financial institutions that take security from companies and individuals over personal property;
• lessors of operating leases, finance leases, and hire purchase agreements;
• landlords who lease chattels (i.e. goods which are not fixtures) with real estate;
• businesses which sell goods on a deferred payment basis.

Some examples

The effect of the legislative change is significant. Consider some hypothetical examples of how it will work.

1. A bank provides construction finance to a building company secured by a charge over all of the building company’s assets. Prior to the commencement of the PPSA legislation, the Bank would register the charge on the Companies Register. Once the PPSA commences operation, however, the Companies Register will be replaced by the PPSR. To perfect its interest, the Bank would need to record a notification against the building company on the PPSR.
2. A supplier sells equipment to a mining company on a retention of title basis. The mining company is required to pay 25 per cent on delivery of the equipment and the balance in regular instalments over six months. The supplier has a ‘purchase money security interest’ in the equipment that secures the 75 per cent balance owing. Currently, retention of title arrangements are not recorded on any registers in PNG because they are not deemed to create a security interest. Under the PPSA legislation, however, deferred payment arrangements are treated as security interests and the supplier can lodge a notice on the PPSR to protect the interest in the equipment.
3. A leasing company leases oil rigs to a customer. Once the PPSA legislation commences operation, the leasing company has 180 days to register a notice on the PPSR in respect of the oil rigs. But it elects not to. The customer then grants a security interest over all of its assets (including the oil rigs) to a bank, which registers a security interest on the PPSR. Two years later, a receiver is appointed to the customer. Although the leasing company holds legal title to the oil rigs, the bank’s registered security interest has priority over the leasing company’s unregistered interest.

Paul Cullen is a Partner at Gadens Lawyers’ Port Moresby office.