Personal Properties and Securities
What is the personal property securities act?
The Personal Property Securities Act (Tulafono Faamalumaluga e Faamau ai Meatotino Tau le Tagata Lava Ia 2013)(‘PPSA’) which was passed in 2013, paves the way for easier access to credit. The PPSA will allow easier use of personal/movable property – i.e. property other than land, like a car or livestock – as collateral for loans. This is intended to stimulate the economy.
Purpose of the PPSA
The purpose of a PPSA is to increase economic activity. It does so by making it easier and less expensive to obtain credit. Increasing access to credit leads to increased economic activity, which invariably leads both to job creation and a resultant increases in the tax base. A PPSA works by providing a means by which movable property may easily serve as collateral for a loan. In essence, this “unlocks” the value of movable property as it may more easily stand as collateral for loans.
The Act accomplishes this by providing for the creation of what are called “security interests” in movable collateral. These security interests are then recorded into a centralized electronic registry so that others may determine whether a proposed debtor has previously pledged particular collateral to secure a previous loan. The ability to perform this sort of search against a would-be borrower results in lenders feeling more confident about extending credit, knowing that the collateral for their loan has not been previously pledged.
Furthermore, a PPSA provides specific rules governing the relative priority of various creditors in collateral, bringing certainty to the lending transaction. With a few exceptions, the interests of secured parties in their collateral are protected against all other creditors, thus providing additional comfort to lenders to proceed with the loan transaction.
Summary of the PPSA
The Personal Properties Securities Act 2013 (‘PPSA’) aims to provide for:
- the creation of security interests in movable property;
- the prioritization of competing interests in movable property;
- the creation of a public filing office where notices of security interests may be filed and where they are publicly available for inspection;
- the simplified, expedited enforcement against collateral when a debtor defaults;
- the repeal of the Chattels Transfer Act 1975; and
- matters incidental to the above.
Briefly, the PPSA contains 7 Parts which deals with the following:
Part 1 – deals with preliminary matters, such as how public notice is given for the purposes of the Act.
Part 2 – contains definitions, interpretation provisions and the scope of the law.
Part 3 – deals with the creation of a security interest, the perfection of a security interest, and establishing priority of competing security interests in movable property.
Part 4 – deals with creating a public filing office where notices of security interests may be filed and where such notices are publicly available for inspection.
Part 5 – deals with enforcement of the security interest and provides for simplified, expedited enforcement against collateral when a debtor defaults.
Part 6 – deals with the pre-emption of the Act over other laws creating charges and provides for the transition or pre-existing transactions into the registry created under the Act; and
Part 7 – lists the offences and penalties for violations of the Act.
A minor amendment was made to the PPSA which was passed by Parliament in January 2015. The PPSA and the Personal Property Securities Amendment Act 2015 (Teuteuga o le Tulafono Faamalumaluga e Faamau ai Meatotino Tau le Tagata Lava Ia 2015) will govern, amongst other things, the use of an Electronic Registry for personal property securities (or the PPS E-Registry).
The PPS E-Registry will record personal property that has been used as collateral against a loan. Potential lenders will be able to check the registry to ensure property being offered to them as collateral has not already been pledged to another lender. This will make lenders more comfortable to accept personal property securities, meaning easier access to credit for the public.
The PPSA will be implemented before the end of 2016. We appreciate and gratefully acknowledge the tremendous support (technical and financial), guidance and on-going advice from the Asian Development Bank, its appointed consultants and our relevant stakeholders who made it possible for the PPS Project to successfully reach its current state.