To All Business Operators – It’s Time for a PPSR Health Check to Avoid Peril
The Personal Property Securities Register (PPSR) offers an easy way for businesses to protect themselves when transacting with customers, such as when buying, selling, leasing, or hiring out personal property.
The Personal Property Securities Register (PPSR) is Australia's single, national, online register where details of security interests in personal property can be registered and searched. Personal property is defined as all forms of property other than real estate (subject to limited exceptions). The PPSR operates as a noticeboard and offers an easy way for businesses to protect themselves when transacting with customers, such as when buying, selling, leasing, or hiring out personal property.
PPSR Gives Protection Against Risks
For purchasers of equipment, a PPSR search can disclose whether the equipment is likely to be free from existing financed debt and therefore safe from possible repossession. Sellers and lessors can be protected too. When selling on retention of title or consignment, or hiring or leasing out personal property, making a registration on the PPSR can provide protection in the event that the customer does not pay. A properly registered security interest can have priority over any unregistered interests. This was the case in Maiden Civil, where the NSW Supreme Court found that a registered security interest had priority over an unregistered interest, despite that the holder of the unregistered interest owned the goods, being three expensive construction vehicles.
The recent decision of Samwise Holdings v Allied Distribution Finance reminds secured parties of the importance of making a PPSR registration in a timely manner. In this case, the Full Court of the South Australian Supreme Court dismissed the appeal of a lower court decision and affirmed the trial judge's interpretation of the legislation on how a “purchase money security interest” (PMSI) should be registered. We covered this in an earlier blog. In addition to timely registration, make sure your registration is valid. A defective registration can literally cost you millions. In OneSteel Manufacturing, a leasing company had to forfeit $23 million in leased equipment to the administrators of OneSteel as it incorrectly registered its interest against OneSteel's ABN and not the ACN.
Renew Registrations Before They Expire to Ensure Protection is Continuous
The Australian Financial Security Authority (AFSA) is responsible for managing the application of personal property securities laws. According to AFCA's June quarter 2018 PPSR quarterly statistics, most PPSR registrations have a duration of seven years (or less). This comes as no surprise, as (up until 31 July 2018 ) it only costs $6.80 to register a security interest for any period up to seven years. (The other two registration periods and costs are $34 for any period up to 25 years, and $119 for an indefinite period.) If you need to make PPSR registrations, SAI Global can help. You can find out more here.
In case you have not heard, most PPSR fees have gone down on 1 August 2018. It now costs only $6 to make a registration for up to seven years. You can find out more about the new fees here. It really does not cost much to get protected from risks!
In January 2019, when the PPSR will have been operating for seven years, AFSA reported that a staggering 118,422 registrations are due to expire. This is largely because a significant number of businesses registered their security interests on the PPSR when it first went live in January 2012.
Businesses should renew their registrations before they expire to make sure the protection afforded by the PPSR is continuous. This is known as “continuous perfection”, meaning that there have been no gaps in the “perfection” (that is, registration, in this context) of the security interest. A security interest that is perfected and continuously perfected generally will take priority over a security interest in the same property with a gap between renewals.
The PPSR in Practice
It has been reported that farm finance (e.g., agricultural business lending) is one of the flashpoints that saw several Nationals push hard for the Federal Government to conduct an inquiry into misconduct in the banking, superannuation and financial services industry. The importance of registration and continuous perfection can be illustrated with a farm finance example.
A secured party that operates in the agricultural space can benefit from an extra priority that applies to security interests taken when supplying goods that assist with the development of livestock or the growth of crops. A financier who takes a security interest when providing a farmer with goods (such as feed for cattle or fertiliser for soil) can benefit from an extra priority that applies. The proviso is that the livestock is acquired or the crops are planted within six months from entering into the agreement.
Put another way, agricultural suppliers get extra priority over other security interests in the resulting livestock or crop, provided that they register their interest and keep their interest registered. This means perfection, and continuous perfection is a must!
How to Renew a Registration
A secured party (such as a lender or a supplier) can renew a registration by amending the duration of that registration. The end date for the registration can be extended any number of times. This must be done prior to the registration's expiry, and accompany a $6 fee (for a duration seven years or less). A comprehensive list of fees for using the PPSR can be found here.
A secured party can request a report of 'Registrations due to expire' from the 'Reports' tab of the PPSR's secured site. To access this report, make sure you have your access code of the relevant secured party group (SPG) handy, as well as the 'SPG number.'
The Time to Act is Now
Remember, ownership alone is not enough to protect a secured party. We explained this in an earlier blog. According to the PPSR: “The register offers your business excellent risk protection. It is also a tool that can help you raise finance using your business goods and assets” .Act now – conduct an audit to identify registrations that you need to renew. In addition, review all details to ensure correctness. Some parts of a PPSR registration can be amended, and you can consider making any necessary changes as you renew a registration. Examples of parts of a registration that can be amended include
- grantors (add or remove);
- free text description of the collateral;
- whether the registration is subordinate to another registration; and
- proceeds to be claimed.
Learn more how SAI Global can make PPS registrations and searches easy for you by contacting us today.