Over the past few years, we have written on several occasions in this newsletter about the Personal Property Securities Act 2009 (PPSA), which commenced more than 8 years ago on 30 January 2012. In one of these pieces we asserted that the PPSA “brought about the most profound change to the law affecting everyday business that we have seen in our careers”.
We still believe that, and it seems that many other Australian businesses also recognise the significance of these changes, with over 20 million registrations created on the Personal Property Securities Register (PPSR) since 2012.*
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.
However, we suspect that these figures are disproportionately driven by larger and better-resourced businesses. From personal observation it is troubling how many small business owners have little to no awareness of the PPSA’s relevance to their operations.
This was brought home to us recently when we heard about an art dealer who had supplied paintings on “consignment” (or retention of title) terms to another gallery that unfortunately then went into insolvent liquidation. The paintings were clearly identified as the property of the dealer, and in the “old days” i.e. pre-2012, the art dealer could simply have collected his paintings from the liquidator – because they were HIS (the dealer’s) property.
But this approach is no more. Because the dealer had not registered his “interest” in the paintings on the PPSR, he lost out against the liquidator. All he could do was claim as an unsecured creditor, alongside all the other unfortunates.
It is imperative that any business that supplies goods on account terms, or “consignment”, to a customer (such as a reseller) pending payment, must register on the PPSR – otherwise, in effect, you are handing over ownership and hoping for the best.
The same applies in other situations where a business delivers possession of goods to a customer or other third party, such as a leasing arrangement or long-term bailment. There are some situations where it is not necessary to register, but your starting point should be that it probably is. If in doubt, you can check yourself on the PPSR website or seek advice.
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;
- Want to raise finance using stock or other assets as collateral; and
- Work as an adviser to clients who conduct these activities.
The PPSR applies to many industries including:
– Automotive – Construction – Farming & Agricultural – Financial Services – Hire & Rental – IP – Research & Development – Mining – Professional Artists, Hobbyists & Dealers – Retail – Wholesale –
A registration on the PPSR can offer businesses excellent risk protection. However, registrations can be invalid if they are not exactly correct, exposing businesses to financial risk.
In fact, last year the Australian Financial Security Authority (AFSA) commissioned research from BETA (the Australian Government’s behavioural economics team) which discovered 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 is initially confusing and the procedures quite complex, so you may want to take professional advice on setting up your systems and training your staff. However, once you have made what is in relative terms, a small investment in set-up costs, you should be able to manage your registrations in-house.
What can be listed on the PPSR?***
Almost anything with value can be listed on the PPSR. Listable items are divided into four groups, which are then subdivided. When you are registering your interest in property you need to specify the categories.
These categories are listed below.
Tangible Property: Actual physical goods.
Subcategories: Motor vehicles, Watercraft, Aircraft, Agriculture (including crops and livestock). Other goods, such as art, machinery or any tangible property that doesn’t fit into the above subcategories.
Intangible Property: Intangible goods of all kinds except most financial property.
Subcategories: Accounts such as monetary obligations, leases or licences. Intellectual property including patents, proprietary designs, circuit maps and trademarks. General intangible neither financial nor any of the above.
Financial Property: Specific financial properties, products and instruments.
Subcategories: Chattel paper ie documents evidencing monetary obligations. Currency ie cash of any country. Deeds or title documents. Intermediated security. Investment instruments eg shares. Negotiable instruments eg IOUs, contracts.
General Property: An “everything” category, for ownership of all present and acquired properties of an individual or organisation.
Subcategories: All property (no exceptions) and All property (with exceptions).
There are also implications if you are on the other side, as the recipient of goods. For instance, if you are a retailer, you can expect that all your account suppliers will have registered security interests against you on the PPSR. Most businesses never do a search of their own register – but when they do it can be alarming to see perhaps 20 or 30 registrations, or more.
However, there is no need to be alarmed as this is normal. Before 2012, when company charges were registered with ASIC, multiple charges indicated that the company was heavily borrowed, and possibly a credit risk. That inference cannot be validly drawn now. Registrations on the PPSR are largely a measure of how many different suppliers a business has (a matter of which the owners are painfully aware when payments fall due each month!).
However, there is one point of potential concern. Under the former company charges regime, in order for ASIC to register a security interest against a company, it required to see the charging document, signed by the company giving the charge.
That is not a requirement for registration on the PPSR. The grantee – i.e. the party claiming the benefit of the registration, such as the supplier of goods on consignment – can register its interest unilaterally. There is no requirement for any document or consent signed by the “grantor” – the party against which the interest is registered.
Of course, false registrations are serious breaches of the PPSA, potentially leading to civil or even criminal penalties, and there are procedures for the removal of non-legitimate registrations. However, as is always the case in matters such as this, these procedures are cumbersome, potentially expensive if you have to invoke professional help, and above all take some time.
This can be inconvenient, or worse if you become aware of the false registration only shortly before you are due to close on a transaction requiring a clean slate, such as a sale of business.
So, it is worth doing a check of your own register from time to time. You can do that yourself on the PPSA website, or of course we can always help with it.