The Personal Property Securities Register (PPSR) serves as a critical tool for many Australian businesses in protecting their assets. It’s legislation (the Personal Property Securities Act 2009) is a complex beast which impacts many business ventures, from lending money to providing goods on consignment or hiring out equipment.
In this article we explore the importance of correctly registering security interests for businesses that provide goods and equipment to third-parties, and highlight the potential risks of not doing so.
PPSR registration process
The PPSR provides a centralised platform for recording and managing security interests in personal property, which is searchable by anyone. Registering a security interest involves providing specific details about the person providing the property (you), the person receiving the property (grantor), and the property being leased or given on consignment (collateral). Once you know the correct process, registration can be done online via the PPSR website.
Here’s why it’s important to get the process right:
1. Legal protection
Even if you have a consignment agreement or hire terms in place with your customers, this may not be enough to protect your interest in your goods if a customer goes insolvent or defaults on your agreement.
While your goods are in the possession of the customer, an insolvency practitioner can consider them part of the assets of the customer and sell the goods to satisfy the company’s creditors.
For complete protection you need to ‘perfect’ your interest in the goods by registering on the PPSR, and not just relying on your agreement.
2. Securing priority rights
In the unfortunate event of a customer’s insolvency or default, having a registered security interest allows you to assert a claim over the goods ahead of other creditors. This priority status provides a legal advantage that significantly improves the chances of asset recovery or receiving compensation, ensuring that your business does not suffer financially due to non-payment or default by a customer.
3. Clear title to your property
By registering a security interest on the PPSR, an insolvency practitioner or third-party searching the PPSR will find you as a secured creditor against your asset. This means that an insolvency practitioner will be able to contact you and include you on a priority list for repayment. This also allows third-parties who may be seeking to register an interest over what appears to be your customer’s property to see that you are the true owner of the relevant goods. For this reason, it’s also important to keep your contact details up to date on your registrations.
4. Risks of non-registration
Failing to register a lease on the PPSR exposes businesses to substantial risks. Without registration, you are considered an unsecured creditor, lacking priority over other secured creditors. In such cases, you may only receive a fraction of your asset’s value or, in worst-case scenarios, no recovery at all. Further, without clear and timely registration of your interest, a customer could grant a third-party (such as a money-lender) their own interest in the goods before you do, meaning they would have priority over you.
These situations can lead to severe financial repercussions, potentially jeopardising the stability of your business. Reports from the Australian Financial Security Authority indicate the loss to businesses in the hire industry due to unsecured creditor status is in the millions.
What this means for you
It is crucial that any business providing goods on lease or consignment protect their rights and interests in their assets through registration on the PPSR. To do this you will need:
- A well-drafted agreement giving rise to the security interest; and
- Correct registration of the security interest on the PPSR.
While the registration process is somewhat accessible, there are a number of requirements which need to be satisfied for a security to be properly registered, including the correct timing of your registration and the details of the property you are claiming an interest over. This is a technical area of law in which your unique circumstances should be carefully considered to ensure you are getting the full benefit of your agreements and security interests.
Our commercial team can advise on your agreements and provide effective processes for your business to achieve PPSR registration. Contact us to ensure you are appropriately navigating the complexities of the PPSA and giving your business assets the best chance of protection under the law.
