DOF

1 Personal Property Security Act

2 Background

Republic Act (RA) No. 11057, otherwise known as the “Personal Property
Security Act (PPSA),” was signed into law on 17 August 2018.

PPSA aims to promote economic activity by increasing access to least cost

credit, particularly for micro, small, and medium enterprises (MSMEs), by
establishing a unified and modern legal framework for securing
obligations with personal property.

PPSA aims to strengthen the secured transactions legal framework in the

Philippines, which shall provide for the creation, perfection, determination
of priority, establishment of a centralized notice registry, and enforcement
of security interests in personal property and for other purposes.

This is the primary site for the public consultation on the drafting of the
Implementing Rules and Regulations (IRR) of the PPSA.

15/07/19
3 DOF posts online draft IRR for personal property security law
The Department of Finance (DOF) has posted the draft implementing rules
and regulations (IRR) for Republic Act (RA) No. 11057, otherwise known as
the “Personal Property Security Act” (PPSA), on its website, where
stakeholders and interested parties may review and download the
proposed IRR and provide online comments and suggestions.

The draft was posted online ahead of the public hearing that the DOF will
hold this Wednesday (July 17) from 2:00 to 4:30 PM at the University of
the Philippines (UP) Law Center in Diliman, Quezon City to discuss the
proposed IRR.

The microsite on the draft IRR for RA 11057 can be accessed at

https://www.dof.gov.ph/index.php/advocacies/personal-property-security-
act/.

This DOF site contains the full text of the law, the draft IRR, including
invites and notices regarding the upcoming public consultation on PPSA’s
implementing rules.
Pursuant to the thrust of the DOF to maximize the use information and
communications technology to ensure widespread dissemination of
government policies and interaction with stakeholders, the site will
organize online queries, comments and recommendations on the draft IRR
by encouraging stakeholders and interested parties to submit their
comments, queries and recommendations online or through email, and
register in the upcoming events.

For inquiries, comments, and suggestions on the draft IRR for the PPSA,
one can email the DOF-Legal Services Group at ppsairr@dof.gov.ph.

The draft IRR was prepared by the DOF Legal Services Group in
consultation with experts, practitioners and professors in commercial laws
and credit transactions of the UP Law Center.

The PPSA aims to promote economic activity by increasing access to least-

cost credit, particularly for micro, small, and medium enterprises (MSMEs),
by establishing a unified and modern legal framework for securing
obligations with personal property.

It also seeks to increase access to credit of MSMEs, as well as farmers and

fisherfolk.

Under the PPSA, MSMEs, farmers and fisherfolks can now secure their
borrowings by using non-traditional collateral such as account receivables,
inventory, negotiable instruments, electronic securities, crops, livestock,
consumer goods, machinery, equipment as well as intellectual property
rights.

The PPSA likewise provides that future property can now secure a
borrower’s financial needs through the creation of a security interest in
the security agreement; however, the security interest in that property is
created only when the borrower acquires rights in it or the power to
encumber it.

This new law has simplified the process as security interest may be
perfected by registration of a notice with the Registry, possession of the
collateral by the secured creditor or by control of investment property and
deposit account. On perfection, a security interest becomes effective
against third parties.

The centralized notice Registry established under the PPSA shall provide
electronic means for registration and searching of notices. The electronic
records shall be considered as public record.

There shall be no fee for electronic searches of the Registry records or for
the registration of termination notices.

-oOo-
Divina Law
Published 17 September 2018, The Daily Tribune

Do you know that deposit accounts and intellectual property

rights may now be used as collateral in securing loan obligations?

At present, banks and other fi nancial institutions prefer traditional

collateral such as realty and other immovable property making it
diffi cult for small entrepreneurs to obtain loans.

To boost access to credit, especially of micro, small, and medium

enterprises (“MSMEs”), farmers and fi sherfolk, Republic Act No.
11057 (“R.A. 11057”), otherwise known as the Personal Property
Security Act, was signed into law last 17 August 2018. It
strengthened the secured transactions legal framework in the
Philippines and provided for the creation, perfection,
determination of priority, and enforcement of security interests in
personal property. R.A. 11057 also pursued the design,
establishment, and operation of a unifi ed, centralized, online
notice-based national collateral registry that will be lodged in
Land Registration Authority (“LRA”) to reduce the risks involved in
accepting movable collaterals.

Under R.A. 11057, movable collaterals now include, among others:

deposit accounts, accounts receivable, negotiable instruments,
security certifi cate or electronic securities, inventory, equipment,
consumer goods, livestock and other agricultural products,
vehicles, and even intellectual property rights.

Before, a future property cannot be pledged or mortgaged since a

party cannot legally pledge or mortgage property he does not
own. Under the present law, the security agreement can now
provide for the creation of security interest in a future property,
subject however to the creation of security interest when the
borrower acquires rights in it or the power to encumber it.

Essentially, R.A. 10157 covers all transactions of any form that

secure an obligation with movable collateral, except interests in
aircrafts which will be subject to Republic Act No. 9497, or the
“Civil Aviation Authority Act of 2008”, and interests in ships
subject to Presidential Decree No. 1521, or the “Ship Mortgage
Decree of 1978”.
Prior to R.A 11057, pledge or mortgage of a movable collateral
would diff er in formalities as to creation, perfection/registration,
and enforcement. In pledge, delivery of the thing pledged is
necessary for its validity while in mortgage, delivery is not
necessary. In pledge, the agreement must be in a public
instrument containing the description of the thing pledged and
the date thereof to bind third persons; in mortgage, registration
where the property is situated is necessary to bind third persons.
Now, rules on formalities as to creation, perfection/registration,
and enforcement have been simplifi ed and harmonized. A signed
written contract is enough to create a security interest. Perfection
of such security interest may be by registration of a notice with
the registry, possession of the collateral by the secured creditor,
or control of investment property and deposit account. Also, a set
of priority rules had been provided for to determine the priority of
interests and liens in the same collateral. More importantly,   the
long-standing distinction between a pledge and chattel mortgage
on the right of the lender to recover defi ciency has been removed.
Under the old law, the mortgagor is liable to the mortgagee if the
proceeds of the foreclosure sale are not enough to satisfy the
loan. Conversely, the foreclosure of the pledge completely
extinguishes the loan obligation and any stipulation allowing the
pledgee to recover any defi ciency is null and void. Under the new
law, the secured creditor, whether a mortgagee or pledgee, shall
account to the grantor for any surplus, and, unless otherwise
agreed, the debtor is liable for any defi ciency.

In view of the foregoing, it bears stressing that the following laws,

decrees, and issuances and portions thereof which are
inconsistent with the provisions of R.A. 11057, had been repealed,
amended, and modifi ed accordingly:

 Sections 1 to 6 The Chattel Mortgage Law;

 Articles 2085-2123, 2127, 2140-2141, 2243, and 2246-2247 of the
Civil Code of the Philippines;
 Section 13 of the Financing Company Act of 1998;
 Sections 10, 114-116 of the Property Registration Decree; and
 Section 5(e) of the Land Transportation and Traffic Code.

Note, however, that notwithstanding the entry into force of R.A.

11057, the implementation thereof shall be conditioned upon the
Registry in the LRA being established and operational. The
implementing rules and regulations for the eff ective
implementation of the statute will still be promulgated by the
Department of Finance (“DOF”) in coordination with the
Department of Justice (“DOJ”) within six (6) months from its
passage. Additional articles will be written on this new law once
the implementing regulations are in place.
For comments and questions, please send email
to cabdo@divinalaw.com
ATTYATWORK
[The Personal Property Security Act, or Republic Act No. 11057, is the
result of House Bill No. 6907 under Committee Report No. 550 and Senate
Bill. No. 1459 under Committee Report No. 86. Here is the Fact Sheet for
House Bill No. 6907:]

OBJECTIVES:

* To increase competitiveness and the ease of doing business.

* To broaden the utilization of movable assets as collateral for micro,

small and medium enterprises.

* To strengthen the credit infrastructure of the Philippines by equipping

the financial institutions with a modern centralized registry on personal
property to enable them to make more informed decisions in lending.

KEY PROVISIONS:

* Creates a modern centralized registry for personal assets. A security

interest is created by a security agreement.

* Simplifies procedure for the registration of personal assets. The priority

of security interests and liens in the same collateral shall be determined
according to time of registration of a notice or perfection by other means,
without regard to the order of creation of the security interests and liens.

* Expedites extrajudicial foreclosure of rapidly deteriorating assets. The

Registry shall be established in and administered by the Land Registration
Authority. The Registry shall provide electronic means for registration and
for searching for notices.

* Enforces security interest in personal properties.

* Allows private sales to maximize proceeds from personal assets.

* Repeal other laws relating to the registration of personal property.

RELATED LAWS:

* Sections 1 to 16 of Act 1508, otherwise known as the Chattel Mortgage

Law;
* Articles 1484-1486, 2085-2123, 2127, 2140-2141, 2241, 2243, and
2246-2247 of Republic Act No. 386, otherwise known as the Civil Code of
the Philippines;

* Section 13 of Republic Act No. 5980, as amended by Republic Act No.

8556, otherwise known as the Financing Company Act of 1998;

* Section 10 and Sections 114 to 116 of Presidential Decree No. 1529,

otherwise known as the Property Registration Decree; and

* Section 5(e) of Republic Act No. 4136, otherwise known as Land

Transportation and Traffic Code.

Personal Property Security Act (R.A. No. 11057)

Republic Act No. 11057 or the Personal Property Security Act, was signed by the
President on August 17, 2018 giving micro, small and medium enterprises
(MSMEs) improved access to financing from banks and lending institutions which
provides creation, perfection and determination of priority, establishment and
centralized notice registry and enforcement of security interests in personal
property.

The list of assets acceptable to banks and other financial institutions as collateral
was. Republic Act No. 11057 provides that collateral shall be considered
sufficient whether it is specific or general if it reasonably identifies the collateral.

The new law stated that “a description such as all personal property, all
equipment, all inventory or all personal property within a generic category of the
grantor is sufficient.” Financial institutions and formal lending firms prefer real
estate, like most banks and other immovable assets as collateral, this makes it
difficult for small-scale entrepreneurs to apply for loans for their businesses.

The establishment of an electronic registry by the Land Registration Authority is

also required by Republic Act No. 11057 to reduce the risks involved in banks
accepting “movable” collateral or those that are not in real estate. The registry
will contain information on personal valuables that were used as collateral as an
assurance for banks and lenders that any collateral being offered them has not
yet been used for another loan.
Republic Act No. 11057 author in the Senate, Sen. Bam Aquino said, improving
access to financing for small businesses would “broaden the use of ‘movable
assets,’ like bank accounts receivable, inventory, equipment, vehicles,
agricultural products and even intellectual property rights.”