Over the past few years, we have written on several occasions about the importance of the Personal Property Securities Act 2009 (PPSA). The PPSR is one of the primary risk management tools that can help protect your business against unexpected issues such as disrupted cash flow or asset loss that may arise as a result of insolvent customers.
Although it has been over a decade since the inception of the PPSR, it continues to be under utilised. Whilst larger businesses such as financial institutions tend to be aware of the PPSR, statistics indicate less than 15% of businesses in Australia are registering on the PPSR, with SMEs substantially under-represented in the total number of registrations and searches*.
Given 300,000+ businesses exited the economy over the last financial year* and early indicators reflect a potentially volatile economic environment ahead for 2023, there has never been a more prudent time to incorporate the PPSR as part of your standard risk management processes.
Did you know? In the 12 months up to 30 September 2022, there were over 1.9 million registrations and over 11 million searches on the PPSR. **
What is the Personal Property Securities Register (PPSR)?
It is the only national online register that provides information to help protect businesses that sell, hire or lease goods. Businesses can register their security interests in property to protect themselves from loss if a customer defaults on their loan, fails to fulfill their commitment or goes into administration. This means that if your customer doesn’t pay, or goes out of business, a registration on the PPSR puts you in the best position to get your goods, or their value, back. The PPSR legally defines the priority of security interests, with a ‘first in, best dressed’ principle.
Most importantly, if your transaction is one that is covered by the PPSA, a failure to register means that you can lose out altogether.
Who is the PPSR for?
It is for businesses that:
- Sell goods on retention of title terms;
- Hire, rent or lease out goods;
- Buy or sell valuable second-hand goods or assets;
- Lend money against the security of business or personal assets;
- Want to raise finance using stock or other assets as collateral;
- Work as an adviser to clients who conduct these activities; and
- Places goods in the hands of someone else on “consignment” or “bailment”
How can the PPSR protect you as a buyer?
- A search on the PPSR when purchasing second-hand items will indicate if there is an existing security interest for a debt or other obligation on the item/s.
- For example, you may want to purchase a second-hand vehicle however the seller may fail to disclose they still have finance owing on it. In this situation, when they cease making payments the finance provider may be able to take the vehicle without compensating you for the financial loss incurred. A quick search on the PPSR can avoid this situation.
How can the PPSR protect you as a seller?
- The PPSR protects businesses that sell on terms, such as retention of title or consignment, or hiring, renting or leasing out valuable goods, machinery, vehicles and equipment.
- Before the PPSA came into effect so long as the supplier’s documentation made clear that it retained title to goods until paid, as the “true owner” it could reclaim the goods back if the customer became insolvent – the liquidator could not touch them. That is no longer the case – unless the supplier has registered on the PPSR.
- Registration of your interest for items you are yet to receive payment for helps to recover the debt and lessen the risk of losing the goods if the customer does not pay or becomes insolvent.
- A correctly worded invoice or contract, along with an effective PPSR registration, can put you ahead of banks, other lenders and outstanding tax debts, if your customer goes out of business.
How can the PPSR protect you as a lender?
- If you lend money to another person or business you can take security over the assets of the business you are lending to – but for the security to be effective it must be registered on the PPSR. That is the case whether it is a bank providing a working capital loan, or parents giving a leg-up to their son’s or daughter’s start-up business.
- Shareholders and directors lending money to the company also need to register on the PPSR. We have seen several cases recently where all the necessary documents have been signed, but the security was not registered on the PPSR, and the lending shareholders have lost their entire loans.
How can the PPSR protect you as a supplier of goods on consignment?
- This important category is often overlooked. It applies to many transactions where one party places goods into the custody of another party.
- For instance, artists often place their artworks on “consignment” with a commercial gallery that displays the work, and takes a commission on a sale. The artist should always register on the PPSR. Otherwise, if the gallery goes bust, the artists works will be claimed by the liquidator and sold to pay the gallery-owner’s debts, and the artist stands in line as an unsecured creditor.
- This can also apply to goods held in storage – for instance, a wheat farmer who puts grain in a commercial silo to hold until it is delivered to a buyer. The farmer should register on the PPSR.
- The same would apply to an on-line business that uses a commercial warehouse to hold stock until sold and then dispatch it to customers. If the warehouse company goes into liquidation the online business will lose its stock if it has not registered on the PPSR.
- Not all bailment and consignment transactions are covered, and the PPSA rules are complex – however, in any situation where you are delivering your property into the hands of another party, however well-trusted, you should check whether a PPSR registration is required.
What can be listed on the PPSR?***
Almost anything with value can be listed on the PPSR. When registering your interest in property you need to specify the categories. Items are divided into four primary category groups, which are then subdivided as per the table below.
To find out what can happen when you don’t register on the PPSR, click here to read our case study
It’s Just Unfair.
Whilst a registration on the PPSR can offer businesses excellent risk protection, it can be invalid if not done correctly. In fact, research indicates that approximately 12% of registrations contained errors, exposing businesses to the exact risk they were trying to mitigate by utilising the PPSR. ***
Whilst all the required steps to register security interests can be completed online at the PPSR website, the website can be confusing and the procedures quite complex, so you may want to seek professional advice on setting up the PPSR process for your team to ensure your business is protected moving forward.
If you have any questions or would like to find out more about how the PPSR can protect your business, feel free to contact us at Antcliffe Scott, we’d be more than happy to help.