Introduction
The Personal Property Securities Register is the national register of security interests in personal property.
The PPSR establishes a priority system for ranking different parties’ interests in property. Failing to consider the PPSR can lead to severe consequences. For example:
- If you buy an asset that has a security interest registered against it, and you did not notice the interest when you bought it, you could lose the asset to the party holding the security interest,
- You could provide an asset (e.g. by way of a lease) to a customer without registering your interest on the PPSR, only for the customer to go into liquidation and you lose the asset, notwithstanding the fact that you were the legal owner of the asset,
- A landlord could take a security deposit from a tenant, but not register their interest in the security deposit. If the tenant goes into liquidation, the landlord could lose the security deposit.
One of the most extreme examples of the consequences of making a mistake with the PPSR was where a lessor is said to have lost around $23 million under an asset lease arrangement because it failed to properly register its security interest in the assets that it was leasing, the lessee went into liquidation, and the assets vested in the liquidator to be distributed among all unsecured creditors, notwithstanding that the lessor was the legal owner of the assets being leased.
When should I search or register on or search the PPSR?
Basically, you should consider whether you need to register on or search the PPSR whenever you are:
- Taking or retaining an interest in personal property, and you are not in possession of that property, or
- Buying property other than property used predominantly for personal, domestic or household use and that is worth $5,000.00 or less, or property that is being sold to you in the seller’s ordinary course of business.
An example of the first situation would be where a wholesaler provides goods on credit to a retail store. An example of the second situation would be where a business buys another business.
How does the PPSR work?
The Personal Property Securities Register have their own site which can be accessed here.
There are two aspects to the PPSR:
- Secured parties (i.e. people having security interests) who register their security interests on the PPSR.
- Anyone dealing with property can search the Register to see if there are any security interests registered against the property they are dealing with.
What is personal property?
Most property that is not real estate will be personal property for the purposes of the PPSR. This includes:
Tangible property such as:
- vehicles
- machinery
- furniture
- inventory
- stock
- goods
- livestock
- crops
Financial property such as:
- shares
- bonds
- cash in bank accounts
Intangible property, such as intellectual property.
Land, buildings and fixtures attached to land and buildings are not personal property and interests over these assets cannot be registered on the PPSR. Crops, however, do qualify as personal property.
What is a Security Interest?
A security interest is an interest in personal property that secures the payment of a debt or performance of an obligation.
Examples include:
- A loan secured by personal property
- A hire purchase agreement
- A retention of title or consignment arrangement
- A lease of goods
- Tenant’s installations
- Money held as a security deposit
A security interest must be evidenced in writing.
Perfection and priority rules
A security interest that is perfected will achieve priority over subsequent registered security interests (except for PMSI’s), and will be enforceable against third parties and a liquidator.
The most important form of perfection for you to be aware of is perfection by registration. A security interest is said to be perfected when it is registered on the PPSR.
PMSIs
Purchase Money Security Interests are a special form of security interest. They arise where the security interest is over collateral to secure the purchase price of that collateral. They also arise with leases and consignments.
Most retention of title arrangements, hire purchase arrangements, and leases will be PMSIs.
A PMSI takes priority over earlier perfected security registrations.
For example, Company X borrows money from Big Bank and Big Bank takes a security interest over ‘all present and after acquired property’ of Company X. Company X later buys a car under a finance arrangement with Fancy Car Dealer. Fancy Car Dealer is able to register a PMSI over the car, which would take priority over Big Bank’s earlier registration.
Priority Rules
The Personal Property Securities Act regime creates the following hierarchy as to which party’s interest takes priority:
- Security interests perfected by control (e.g. banks having control over funds in accounts held with them)
- PMSIs
- Registered interests (with priority determined by time of registration)
- Third party purchasers for value and liquidators
- Unregistered interests
A party that fails to register a security interest will rank below the following:
- A party that has registered a security interest in the property;
- A liquidator (in effect, making an unregistered secured party an unsecured creditor if the grantor goes into liquidation)
- A third party that bought or leased the property from the grantor (whether or not they had knowledge of the unperfected security interest)
Time Limits
There are two key time limits to keep in mind, depending on whether you are registering a PMSI or a general security interest.
PMSIs
PMSIs must be registered:
- Where the collateral is inventory, before the grantor obtains possession of the collateral;
- Where the collateral is not inventory, within 15 business days of the grantor obtaining possession of the collateral.
If they are not registered in time, they lose their ‘super-priority’.
Other security interests
Ordinary security interests should be registered within 20 business days after the security agreement that gave rise to the security interest comes into force. Registering after this time does not affect their validity, but section 588FL Corporations Act 2001 (Cth) provides that where a security interest is registered outside the 20 business days but within 6 months of a company starting being wound up, the security interest will vest in the company and the secured party with lose the benefit of the security interest.
How we can help
If you are thinking the PPSR sounds confusing and complicated, you are right. It is unfortunately neither easy to understand nor intuitive.
So where should you start?
First, contracts, agreements and terms and conditions should clearly specific what security interests are being granted and each party’s rights and obligations with respect to those security interests. If you would like assistance reviewing your existing documents or preparing new ones, please do not hesitate to contact us.
Secondly, when you are entering into an agreement, you should see if you are granting any security interests over your own property.
Thirdly, it is critical to properly carry out searches and conduct registrations on the PPSR. This, unfortunately, is also not intuitive. Doing something as seemingly harmless as using an Australian Business Number when you should have used an Australian Company Number, or vice versa, can be fatal. To make matters worse, the PPSR website can actually be misleading in this respect. If you are unfamiliar with the complex rules around using the correct identifier for a party on the PPSR, or the correct collateral class, we recommend speaking to us and we can either complete the registrations for you, or provide you with training on how to complete your own registrations.
If you require assistance, please do not hesitate to contact us on 1300 205 506 or fill in the contact form below, and we would be happy to assist. We can conduct searches and registrations for your business, and also offer training to assist businesses who deal with the PPSR regularly to have proper guidelines in place.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
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