Personal Property Securities Update: A New Era in Retention of Title (Romalpa) Arrangements

We previously advised of proposed law reforms dealing with the taking of securities in an earlier edition of the Briefly.  These reforms (PPS Reforms) which are contained in the Personal Properties Securities Act 2009 (Cth) (PPS Act) were to commence in May 2011, however following a recommendation from the Business Regulation and Competition Working Group of COAG the reforms have been deferred until October 2011.

This article focuses on one of the key areas which will be affected by the PPS Reforms namely, retention of title arrangements.  These arrangements (sometimes called Romalpa arrangements after a UK Case dealing with such arrangements) involve a supplier of goods retaining title to those goods until the supplier is paid in full. They commonly include a requirement for the purchaser to separately store and identify the goods until they are paid in full and purport to permit the supplier to enter onto the purchaser’s premises for the purposes of recovering the goods in the event of non-payment.  These arrangements are commonly documented in distribution and other supply contracts as well as in standard terms and conditions of sale for goods.

Historically, provided that the arrangements were appropriately drafted and provided that there was no dispute as to the identification of the goods in question, these arrangements were enforceable by suppliers against both purchasers and third parties, such as an administrator appointed in respect of the purchaser’s affairs.  In recent years however, the value of these arrangements has been somewhat eroded by changes to the Corporations Act 2001 (Cth) which permitted an administrator to dispose of goods the subject of these arrangements, even after a demand has been made by the supplier for their return, provided that the administrator acts reasonably. 

Now under the PPS Act, these arrangements will have to be registered as a personal property security for them to be enforceable against third parties.  In order to be registered, the arrangement will need to be recorded in writing and signed by the purchaser (the grantor) or adopted or accepted by the purchaser with adequate identification of the goods.  If the arrangement is not registered, the arrangement will be enforceable against the purchaser, however, a third party may have priority over the supplier by virtue of having secured a security interest in the goods.

Generally, one registration of such an arrangement with a particular purchaser will be sufficient to protect goods supplied under a series of transactions between the supplier and that purchaser.

The PPS Act provides that registered security interests will continue to operate even if the goods supplied are mixed in (commingled) with other goods or become affixed to other goods.  It also sets out new rules as to the right of the supplier to trace the proceeds of sale of goods over which a security interest has been registered.

A supplier who has a retention of title arrangement with a purchaser can register the arrangement as a “purchase money security interest” (PMSI).  PMSIs effectively operate as a “super priority” which enables the supplier to claim priority over the holder of any other security who might otherwise have priority over the supplier. 

In summary, suppliers may continue to include retention of title clauses in their various contracts and sales documentation however in order for them to be fully enforceable against third parties, the purchaser must have signed or accepted the relevant documents and the suppliers must register their interest on the PPS Register, preferably as a PMSI.  Failure to do these things may mean that the arrangement is not enforceable against third parties and effectively leaves the supplier with the only remedy of claiming as an unsecured creditor of the purchaser.

For further information or assistance on retention of title arrangements or the PPS Reforms generally, please contact Johanna Churchill, Partner in the Corporate and Commercial Team on 8210 1236 or jchurchill@normans.com.au

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Changes Await Not-For-Profit Organisations

The Federal Government has announced that it will establish a new Not-For-Profit (NFP) regulator, to be known as the Australian Charities and Not-For-Profits Commission, by 1 July 2012.

Initially, the role of the new Commission will be to provide education and support to the NFP sector, although it will also have a compliance role.  Related structural changes will also be made to the Australian Taxation Office (ATO) to separate the determination of whether an entity is charitable, a public benevolent institution or another NFP category from the administration of tax concessions. 

It is important to note that due to constitutional restraints, the Commission will only be able to regulate NFP entities that are subject to the Corporations Act 2001 (Cth), such as companies limited by guarantee or charitable trusts with corporate trustees.  Currently other NFP entities and trusts, for example incorporated associations, will not be regulated by the Commission.  It is intended that in the long term, the Federal Government will negotiate with the States and Territories to harmonise the regulation of all NFP entities.  

The reforms also include key changes to the accessibility of tax concessions for NFP entities.  Tax concessions will now only be accessible for activities that directly further a NFP’s altruistic purpose and not for any unrelated commercial activities. 

Income tax exemptions, for example, will not apply to the unrelated commercial activities of a NFP for any profits generated from those activities that are not directed back to its altruistic purpose. 

A NFP will also not be able to access a FBT exemption or rebate, GST concession or DGR status (tax deductibility of donations) in relation to any unrelated commercial activities.  The reforms will not impact on small scale activity or passive investment activities of NFPs. 

The new concession arrangements will commence on 1 July 2011 and will initially effect only unrelated commercial activities of NFPs that commence after 10 May 2011.  NFP’s with existing unrelated commercial activities will currently be able to continue utilising the tax concessions for these activities, but there is the intention that this will be phased out over time. 

The Federal Government also intends to introduce a statutory definition of “charity” which will be applicable for all Commonwealth purposes.  This may affect whether NFPs retain their charitable status and remain entitled to tax concessions.  The ATO is considering auditing organisations for their core purposes, and as a result, NFP’s may need to amend their governing documents and existing activities to ensure that they fit the requirements of the new “charity” definition.  This aspect of the reforms is expected to take effect from 1 July 2013. 

For further information please contact Johanna Churchill, Partner in the Corporate and Commercial Services Team on (08) 8210 1236 or jchurchill@normans.com.au

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Stamp Duty – Land Rich Entity Amendments

A new Bill was recently introduced to amend the current land rich entity provisions of the Stamp Duties Act 1923 (SA).

In the 2010/11 state budget it was announced that the existing land rich entity provisions would be replaced with a landholder model, with the new provisions expected to operate on 1 July 2011. The Bill gives effect to that intention (although the Bill is not expected to be passed before 6 July 2011).

The effects of the new Bill with respect to the land rich entity provisions are to:

• keep the land value threshold at $1million;
  
  
• remove the test requiring the land to represent at least a 60% interest of the total underlying assets of the company (or 80% of the assets for primary production entities);
  
  
• capture listed entities (they are currently not captured) under the land rich provisions where 90% or more of the shares or units are acquired. It is noted that the Bill proposes that listed entities will be charged at a concessional rate of 10% of the duty normally payable.

Essentially, the new provisions introduced by the Bill will apply when a person or group of associates acquires 50 per cent or more of the shares or units in the private company or unit trust, and the private company or unit trust owns land valued at $1million or more in South Australia.

It should also be noted that under the proposed landholder provisions, stamp duty will apply to the underlying South Australian land assets of the entity as well as goods of the landholder entity which are used solely or predominantly in South Australia (subject to certain exemptions).

The stamp duty payable will be equivalent to the duty that would otherwise be payable on the underlying interest in the land. 

We will be monitoring the progress of the Bill through parliament and provide an updated Briefly once enacted.

For further information please contact Tom Pledge, Senior Associate in the Corporate and Commercial Services Team on (08) 8210 1262 or tpledge@normans.com.au or Tom Walrut, Solicitor in the Property, Infrastructure and Development Team on (08) 8210 1218 or twalrut@normans.com.au

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