As a business owner, you will find yourself dealing with other parties of differing sizes and stages of development. These transactions carry inherent risk, such as when another party cannot meet their obligations owed to you. As a business owner, ensuring the security of your investments, receivables, and transactions is financially and strategically imperative. Without doing so, assets and financial interests can be lost in the blink of an eye. This is where the Personal Property Securities Register (PPSR) comes in.
What is the PPSR?
The PPSR was created out of the Personal Property Securities Act 2009 (Cth) (PPSA), the legislation which governs security interests in personal property (i.e., property is that not land).
The PPSR is an online system that allows parties (‘secured parties’) to register security interests over a specific entity (a ‘grantor’), such as a trust, or over specific assets (such as a vehicle or specific equipment). The PPSR is searchable by members of the public for a small fee. A secured party with a properly registered and secured interest can then enforce their interests against other parties.
Depending on the type of registration that a secured party has, they will be ‘ranked’ as a creditor, meaning that they will stand in priority to receive payment relating to their security if assets are sold. Certain types of registrations will rank more highly over others, so it is always worth business owners obtaining legal advice prior to entering a commercial dealing that involves a securing a financial interest, to ensure that the business’ interests are protected with the best registered security interest possible.
The most common scenario where a registration on the PPSR may be relevant is in the case of insolvency. One of the first steps a liquidator or administrator may do is search the PPSR for registrations. This is to work out who interested parties are and to identify the order of priority for repayment.
Registering your interest
As above, the PPSR uses a ‘priority rules’ system, where timing of registration is critical. The earlier you register your interest, the more likely you are to have legal recourse to that security. As such, it is generally best practice to register your interest as soon as possible.
However, registrations which are not ‘perfected’ may be considered invalid. Perfection under the PPSR refers to ensuring a registration meeting the following criteria:
A security interest exists, usually in contract and in writing;
Security is ‘attached’ to the property;
The security interest is enforceable against a third party; and
The security interest has been registered on the PPSR; or
The secured party has possession or control of the property.
When registering your interest, you will need to consider the types of registrations available and which registration is most appropriate for your circumstances. Common types of security include:
All present and after-acquired property (ALLPAP). This type of registration covers all property owned by the party. This sort of registration is commonly seen for trusts, for example; and
Purchase Money Security Interest (PMSI).This registration is only available to a party that has provided money specifically for the purpose of purchasing an identifiable piece of property (for example, a car or equipment). A PMSI gives the registering party ‘super priority’ to repayment if the relevant property is sold.
PMSI registrations must be done so within 15 business days of the grantor receiving the property, or the security interest otherwise attached to the property.
It is good practice to register your interest within 20 business days after the execution of a security agreement. This is because, under the Corporations Act, if a PPSA security interest is not registered, and a liquidator or administrator is appointed over the company within 6 months of the registration, then the registration will be ineffective, meaning that the grantor joins the rank of other unsecured creditors and cannot assert any priority for repayment.
How do I register my security interest?
Registrations are made through the PPSR website.
Registration can be cheap and quick, but for the registration to be effective it needs to be completed properly and accurately. For example, the secured party should ensure that the details of the grantor (the party granting the security) are correct. For instance, when registering an interest held by a company it is critical to ensure you register using it’s A.C.N. Similarly, when registering over property held by a trust, you should use its ABN.
As above, failing to ‘perfect’ the security interest can affect the effectiveness of the security interest and may mean that a creditor ranks lower in priority to other creditors without intending to. Because of the detrimental consequences that can arise because of a defective security registration, we recommend obtaining professional assistance in registering security interests in the PPSR. Whilst this may mean you incur some professional fees, our view is that if it’s worth securing, it’s worth doing right.
Here are some good reasons why you should register your security interest:
The PPSR offers you an additional layer of legal protection. A written agreement, at times, may not be sufficient to protect your interests.
In circumstances where you don’t register your interests, and the other party becomes insolvent, your property will likely be lost and sold by an appointed liquidator or administrator. In this situation, where other creditors have registered their interest, they will be considered first ranked over you and have a greater likelihood of receiving their goods or money back.
In essence, the PPSR serves to communicate whether personal property or corporate assets are encumbered by security interests. Accurately registering your security interest on the PPSR not only offers protection but ensures that your security interest is publicly visible for anybody conducting a search.
Mitigating the inherent risk associated with commercial transactions is always wise, particularly when you propose to offer funds or goods to a person or entity. By securing your interest in the PPSR, business owners can secure their right to legal recourse in the event of insolvency or bankruptcy and ensure that the hard-earned fruits of their labour don’t end up in the hands of a liquidator or other creditors.
This information is provided solely for general information purposes and is not intended as professional advice. Readers should not act on the information contained therein without proper advice from a suitably qualified professional.
We expressly disclaim all liability for any loss or damage to any person or organisation for the consequences of anything done or omitted to be done by any such person relying on the contents of this information.