Are you familiar with the concept of a fixed and floating charge? What you may not know is that with the start of the Personal Property Securities Act (PPSA) this terminology has been phased out.
Under the PPSA there doesn’t exist the concept of a fixed versus floating charge. Rather, there’s just a security interest that attaches to the grantor’s property (or collateral). So what used to be called an “all assets” fixed and floating charge is now called a security interest over a company’s all present and after-acquired property.
Traditionally, a “fixed” charge (ie one that relates to particular and identifiable asset) covers what is now known as non-circulating assets under the PPSA, usually assets such as land or equipment.
A “floating” charge (ie one that relates to any and all assets of the grantor at the time the charge crystallises) covers circulating assets under the PPSA (such as book debts and trading stock).
The practical difference is that the debtor can deal with floating/circulating assets in the normal course of business, while they cannot dispose of fixed/non-circulating assets without the consent of the lender, and this needs to be reflected in the drafting of the security agreement.
Of course, businesses and individuals involved in giving or receiving loans are just some of the many areas that are impacted by this legislation. Any business using retention of title clauses, or that hires out equipment to others, are caught by the legislation and must have proper practices in place or risk serious losses. The PPSA also impacts many other areas that are not always obvious, for example business sales and acquisitions.
Contact us on [email protected] or 02 8006 0830 if you need your documents reviewed, your security interest protected or you’d like a confidential discussion about any questions you might have about the PPSA.
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