PPSR: A beginner’s guide to securing your business’ interests and how it works.

You have just sold goods on credit to a new or existing customer. Your customer is late on payment and you may be concerned about their solvency. How do you make sure you secure your position?

For businesses that sell goods on credit, PPSR Registrations and Terms of Trade are critical tools to protecting their business. The PPSR is frequently overlooked or misunderstood.

What is the PPSR?

The Personal Property Securities Register (PPSR) is the national register of security interests over personal property. It is regulated by the Australian Financial Security Authority (AFSA).

The purpose of a registration on the PPSR is to place third parties on notice of your interest in personal property. The PPSR replaced the ASIC register of company charges and a myriad of other State and Federal registers as well as common law “retention of title” clauses.

A retention of title clause is common in contracts and terms and conditions of trade, and states that the ownership of goods is retained by the seller until full payment is made by the buyer.

If your agreements and/or terms of trade are properly drafted, such a clause will entitle you to register your interest in the goods against the buyer on the PPSR.

A search of the PPSR will alert any prospective purchasers of the secured goods and insolvency practitioners to your security interest in the goods.

In the event of insolvency or default on the agreement, a valid PPSR registration means you will be classified as a “secured” creditor” as opposed to an unsecured creditor.  In turn, as a secured creditor, you will receive priority in any dividend distributions to be made.

Generally, if there is a default or insolvency you have the right to enforce your security interest. This could mean that you may be able to repossess your goods and/or seize the property. There are clear rules and legal processes for enforcing your security interest you can read more here.

Pursuant to section 10 of the Personal Property Securities Act 2009 (Cth) (the Act) “personal property” is any property other than, land or a right, entitlement or authority granted under legislation, or property that is otherwise declared by law not to be “personal property”.

Some examples of personal property are:

• Machinery and equipment;
• Goods;
• Motor vehicles, boats and planes; and
• Bank accounts.

What happens if I do not register my interest?

You must comply with the statutory timeframes to ensure your security interest is valid.

Generally, you must register your interest on the PPSR by the earlier of either 20 business days of agreement or more than six months before insolvency of the customer.

In the matter of Relux[1], Doka Formwork Pty Ltd (Doka) supplied materials to Relux. The Court identified an error in the calculation of business day and the Honourable Justice Sifris held that the security interest registered in favour of Doka was only valid over the materials supplied within the 20 business days prior to registration. The materials supplied earlier were not secured by the registration.

A purchase money security interest (PMSI) is a type of registration which grants you priority over all other registered interest holders, irrespective of the timing of your registration.

A PMSI must be registered either before the customer takes possession (if the personal property forms part of the customer’s inventory), or within 15 days of the customer taking possession. However, a PMSI may be defeated using the mechanism available under section 64 of the Act.

A security interest will be ineffective and unenforceable if you fail to register in time. In limited and exceptional circumstances, you may be entitled to apply for an extension of time to register.

How to register a security interest on the PPSR?

To register your interest, you will be required to provide the following information:

1. Collateral type (‘commercial’ or ‘consumer’);
2. Transitional status (based on the timing of the security interest);
3. Collateral class (‘motor vehicle’, ‘all present and after acquired property with or without exceptions’ or ‘other goods’);
4. Any additional information (if applicable and dependant on the collateral class); and
5. Grantor details.

This is a highly technical and prescriptive area of law. You should seek legal advice from a commercial lawyer prior to registering your interest to ensure you have provided accurate and adequate descriptions of the goods. You run the risk of your security interest being void if you do not complete your registration correctly.

How to remove an interest on the PPSR?

Disputes and issues can arise with PPSR registrations. If you believe a PPSR registration has been secured over your personal property incorrectly, you may be entitled to apply for removal. This can be done with the assistance of a lawyer communicating directly with other party or if necessary, via the court. It may also be done via the AFSA.

You will need to ensure that you have the right legal grounds and forceful representation to have a security interest on the PPSR removed quickly.

How we can help.

It is imperative that businesses selling goods on credit, are aware of their rights and entitlements under the PPSA in order to protect their interests. Particularly in an economic environment where there are many financially distressed businesses that can impact the solvency of each other.

If you have any questions regarding the PPSR registration process, the drafting of your terms and conditions or any disputes arising out of an existing PPSR registration we can help.

Please contact our office on 1300 907 335 or complete an online enquiry form to obtain advice from an expert lawyer in PPSR disputes.

[1] Carrafa, Gountzos & Lofthouse (as liquidators of Relux Commercial Pty Ltd (in liq)) & Anor v Doka Formwork Pty Ltd [2014] VSC 570.