The Australian Personal Property Securities Act 2009 applies to both new security interests (i.e. those created after its commencement) and existing security interests. Accordingly, the priority, extinguishment and enforcement rules (among others) of the Act will apply to security interests pre-dating its enactment.

Previous updates have discussed the importance of the concept of 'perfection' under the Act. In the case of existing Australian security interests, it is highly likely that secured parties will not have perfected those security interests for the purposes of the Act when it commences. So that holders of existing security interests are not prejudiced by the Act's implementation, there will be a two year transitional period during which all such secured parties will be granted statutory perfection.

However, by the end of that two year period, those secured parties will need to have perfected their security interests (by one of the means provided for in the Act – possession, control or registration). Generally, perfection of transitional security interests will be achieved by registering a 'financing statement' on the PPS register.

Registration is the only form of perfection that should require a secured party to take any action to ensure the continuous perfection of its security interest post May 2013 (as a secured party relying on possession or control of collateral to perfect its security interest will likely already have possession or control of that collateral before the Act becomes operational).

The rules applicable to registering a financing statement in respect of a transitional security interest will be identical to the rules for registering any other financing statement (although such a financing statement must note that it relates to a transitional security interest).

In an attempt to ease the transition, the Act provides that certain security interests will be automatically 'migrated' to the PPS register. These security interests are those currently registered on certain state and federal registers (for example, the Australian Securities and Investments Commission register of charges).

However, this system will be by no means fullproof. Indeed, the way in which these security interests will be migrated will, in some cases, not comply with the general requirements for financing statements set out in the Act (for example, any registration against a serial-numbered collateral (broadly speaking, motor vehicles, watercraft, aircraft and IP rights) will, when migrated, not include the serial number of that collateral, meaning that the financing statement will not provide the secured party with the protection it otherwise would). The Attorney-General's department has suggested that legislation will be passed to rectify this problem. The solution proposed at the time of writing is to deem those defects in the financing statements to be corrected for two years, but at this stage, it is not clear which defects will be corrected – for instance, if the Attorney-General's department does not identify (or is not made aware of) a problem, there is a chance the proposed solution will not apply to fix it.

We note that this solution is only valid for two years. Accordingly, each financing statement automatically registered in respect of a migrated security interest will need to be checked before the end of that two year period to ensure that it does not contain any defects. Failure to do this could result in a financing statement being ineffective from May 2013.

Those 'security interests' that are not traditional security interests (such as leases and retention of title supply arrangements) will not be migrated. Accordingly, secured parties potentially holding these security interests will need to conduct an audit of their existing transactions to determine which will be affected by the Act. This could involve a significant amount of work for many secured parties, particularly given that these arrangements are not currently considered to be security interests, so may not be front of mind when organisations consider what transactions will be affected by the Act. Again, the two year statutory perfection will provide secured parties with some time to ensure perfection of these security interests after May 2013.

Because the Act will apply to existing transactions, secured parties (and grantors) may wish to consider amending security documentation to address new issues created by the Act (such as contracting out of the permitted enforcement provisions). Going forward, we expect to see some changes to security documentation to address these new concepts. However, because of the Act's substance over form mantra, no existing security document should need to be amended necessarily. Accordingly, whether or not existing documentation is amended will involve a cost-benefit analysis, probably undertaken by the secured party (as most of the amendments likely to be made are beneficial to secured parties rather than grantors – such as contracting out of notice provisions).