The Personal Property Securities Act 2009 (Cth) (PPSA) will have a major impact on participants in the Energy and Resources industry. The new securities registration regime, which commenced on 30 January 2012, will have wide ranging effects on the protection and management of security interests in respect of various project assets.
Companies in the energy and resources industry need to consider whether security interests in their project assets should be registered on the new on-line personal property securities register (PPS register).
Failure to identify and register security interests in time could result in third parties establishing a better priority position in respect of security interests over those assets.
Some possible effects of the PPSA on assets in an energy generation project are considered below. However, many of the issues will also apply to assets in other energy and resources projects.
Joint venture agreements (and joint operating agreements) – these need careful consideration as any cross charges (which would have previously been registered with ASIC) and some particular default clauses in the document may create a ‘security interest’ if they effectively secure the payment of moneys or the performance of an obligation in respect of one or more of the joint venturers. Such security interests may need to be registered on the PPS register.
Easements, property leases and water rights – there are specific exemptions for land, fixtures and water rights under the PPSA. Contractual licences (such as access and operational rights) relating to interests in land, fixtures and water rights are also likely to be excluded under the PPSA. However, equipment or goods that are leased as part of a property lease may be caught.
Plant and Equipment – leases or licences (or even bailments) in respect of certain plant, equipment or other goods used in the industry are likely to be caught by the PPSA. The legislation may even apply to the supply of equipment in an agency, outsourcing or franchise arrangement. There are special rules relating to the timing of registration of what are known as PPS leases. PPS leases are deemed to be security interests under the legislation and have specific time limits within which registration must occur in order to create a valid security interest and maintain priority over any later security interests registered by third parties.
Power station infrastructure (including substation, transmission lines, transformer and SCADA) – various plant, equipment and goods used in the resources industry are likely to be impacted by the PPSA, including equipment or associated equipment used in energy generation projects. However, statutory authorities or licences, such as an electricity generation authority granted under the Electricity Act 1994 (Qld) are expressly excluded from the PPSA by section 18A of the Electricity Act .
Power purchase/tolling agreements for sale of electricity – these are contractual rights which may give rise to a security interest. Assignments of receivables, such as cash flows associated with sales contracts, are also likely to be caught by the PPSA.
Retention of Title (RoT) – registration and priority issues may arise with equipment leased (or bailed) to third parties. If the lease (or bailment) arrangement is generally for more than a year or more than 90 days for what the PPSA defines as “serial numbered goods” (which will include motor vehicles such as trucks, cranes, cable placers, chippers, trailers and other special purpose vehicles, and intellectual property (e.g. trademarks, patents etc)) then the lessor/bailor will need to register their interest to preserve the priority of their security interest in the equipment. This is necessary even though they still retain legal ownership to the equipment. This is a new concept for the resources industry to come to terms with. Any existing or new leasing or bailment arrangement in respect of equipment or goods should therefore be reviewed.
Intellectual property rights – the PPSA contains specific rules in relation to security interests in goods that have closely associated intellectual property rights. Statutory trade marks, licensed intellectual property from third party owners and licenses may be captured. Security interests in relation to computer equipment, computer-controlled equipment, mining and drilling equipment generally, copyright material (such as source code, photographs and marketing materials) and other assets with closely related intellectual property rights may need to be reviewed.
Commingling of goods – special consideration may need to be given where goods, the subject of a number of security interests, are commingled. Examples of this are gas in a distribution network, iron ore in a stockpile or coal in a coal train or ship. This is of particular concern if the parties to a joint venture arrangement are not holding their interests in the extracted material as tenants-in-common in proportion to their participating interests in the joint venture. Where goods are commingled, secured parties will hold their security interests over all of the commingled goods that formed part of the mass. There are specific rules and limits around commingled goods, however there can be added complications where the commingled product fluctuates in pricing.
Confidentiality – although a document or an agreement which gives rise to a security interest is not itself registered on the PPS register, a person challenging or querying the registered security interest can seek to obtain a copy of the document which purports to create the security interest. One solution to this problem is to remove any such provisions into a separate side deed which would help maintain the confidentiality of the rest of the JV agreement. Financiers will also want to preserve their security position with respect to certain assets of their borrowers, and hence priority arrangements may need to be revisited
The registration of security interests on the PPS register is purely a notification system as opposed to a document registration system, and registration must be done within specific timeframes to ensure security interests are “perfected” and any priority position preserved.
Talk to us if you have any questions or concerns as to the impact of the PPSA on your business or if you require assistance with the registration of any security interests.