The PPSR & your business

Every day you may be putting your business at risk when buying, selling, leasing or hiring out goods, or selling valuable goods on consignment.

Do the goods you are buying have money owing on them?

Will you get your goods or money back if your customer goes broke?

You can’t avoid these common transactions, but you can protect yourself.

How can I protect my business?

There is a single, national online noticeboard (the register) that shows you whether someone is claiming an interest against goods or assets.

You can also make a registration, so others know when you have retained an interest in goods you are supplying. This means that if your customer doesn’t pay,or goes broke, you are in the best position to get your goods, or their value, back.

Examples of personal property

The register is now the national register of security interests in personal property.

Personal property is a legal term for any property that is not land, buildings or fixtures. Examples are:

  • motor vehicles, boats or aircraft
  • crops, cattle and other livestock
  • stock in trade, artworks and equipment
  • other goods, new or second-hand, whether owned by businesses or individuals
  • intangible property, such as patents, copyright, commercial (not government-issued) licences, debts and bank accounts
  • financial property such as shares, cash or cheques.

Why use the PPSR?

The register offers your business excellent risk protection. It is also a tool that can help you raise finance using your business goods and assets.

Using the register can protect you in the following ways:

  • When buying goods.
  • When selling goods on retention of title or consignment.
  • When leasing, renting or hiring out goods.

And don't rely on your contract's retention of title clause.

When buying goods

Searching the register lets you know if the valuable goods you are interested in buying are being used as security for a debt or other obligation. The register won’t tell you the value of the obligation, but it lets you know who the obligation is owed to so you can find out more.

For example, someone may try to sell you used goods, such as a van or piece of machinery, without telling you they still have finance owing on it.

And if they stop making payments on the loan there’s a very real chance the finance company can turn up on your doorstep and take those goods away, without paying you a cent for your loss.

For $3.40 you can check that goods you want to buy are likely to be free of financed debt, and safe from repossession.

When selling goods on retention of title or consignment

Making a registration shows searchers that you are claiming an interest in the goods or assets you are selling on retention of title terms, or have consigned to someone else to sell on your behalf. This interest means the goods or assets secure the debt or obligation that someone owes you. The registration protects your interest in the goods or assets should the customer default or go broke.

If you don’t make a registration on those goods or assets and your customer goes broke before they have fully paid you, your stuff may be sold to pay secured creditors first. If you are not registered, you will be an unsecured creditor in an insolvency and may not recover much, if anything, of what you are owed.

If you register as early as possible, you stand the best chance of being first in line over other creditors. It also helps you to protect your interest even if the goods or assets are sold on, mixed or installed onto other goods.

When leasing, renting or hiring out goods

If the lease or hiring arrangement is for at least one year, could last for more than one year, or is for an indefinite period, then this applies to you.

Making a registration helps protect your interest in your goods or assets when they are not in your possession.

It shows you are claiming an interest over the goods or assets you are hiring, renting or leasing out. If you don't make a registration and your customer goes broke—your stuff may be sold to pay creditors.

Think you’re already covered with a contract?

A retention of title clause (indicating that title remains with you until goods are paid for in full) in your contract or invoice, no longer protects you on its own.

If you don’t make a registration, your retention of title clause is unlikely to stack up against others when you need to rely on it.

In other words, someone else who has registered an interest is ahead of you in the queue should your customer default or go broke.

Make sure you back up your contracts by registering your interest.

The PPSR and priorities

The PPS Register is an online register of security interests held in personal property[1].

Secured parties such as financiers and other lenders can register their security interests on the PPS Register. It is also be possible to search the PPS Register for details of security interests.

The PPS Registrar has responsibility for functions under the Personal Property Securities Act 2009 (Cth) including the administration of the PPS Register. The functions of the PPS Registrar and the operation of the PPS Register are supported by the Personal Property Securities Service.

Default priority rules

Registration on the PPS Register is a form of perfection under the PPS Act. The most common form of perfection[2] under the PPS Act will be by registration.

Perfection by registration has two main benefits for a secured party. Firstly it defines the priority status the security interest has relative to other security interests in the collateral. Secondly it ensures their security interest survives the bankruptcy or insolvency [3] of the grantor, the person that receives assistance to acquire the collateral.

The effect of registration upon the priority of security interests is demonstrated through the default priority rules under the PPS Act. These rules provide that:

  • a perfected security interest takes priority over an unperfected security interest
  • priority between two or more perfected security interests is determined in favour of an earlier perfected security interest over a later one, and
  • priority between two or more unperfected security interests is determined in favour of an earlier attached security interest over a later one[4] .

These rules operate on a default basis and are subject to more specific priority rules throughout the PPS Act. For example, there are specific rules that apply to purchase money security interests. For more information, visit the information sheet about purchase money security interests[5].

Making a registration

On receiving an application in the approved form, the PPS Registrar may enter a security interest onto the PPS Register[6].

The application must consist of a financing statement. The financing statement[7] contains the particulars of parties to the transaction, the collateral and the security interest. For certain collateral the grantor’s details will not be entered for privacy reasons[8].

On the registration of the financing statement the PPS Registrar issues a verification statement[9] to the secured party. The verification statement can be relied upon by the secured party to prove their registration. The secured party must give a notice of the verification statement[10] to the grantor.

A person with an interest in collateral that has had a security interest registered against it may demand[11] the secured party remove the registration if the collateral does not secure an amount owed to the secured party. The secured party may amend or remove the registration. If they do not do so within five business days[12] the person that gave the demand can apply in the approved form[13] to the PPS Registrar and require that the registration be amended or remove[14]. If the secured party disagrees with the demand[15] they may seek a court order that to the effect that the demand was not valid.

Searching the PPS Register

A person may search the PPS Register for details of a registration or security interests registered against a particular grantor.

If the grantor being searched against is an individual rather than a company the search must be for a purpose authorised[16] by the PPS Act. These purposes have been drafted to ensure privacy requirements are complied with. Breach of these authorised search purposes is a civil[17] and criminal offence[18].

The search certificate will contain details of the parties and the class of collateral the security interest has been registered against.

Fees

The feesfor registration and search of the PPS Register are determined by the Attorney-General[19] for Australia. Costs are determined on a cost recovery basis. The Australian Government will make no profit from the PPS Register.

Notes

  1. At a general level personal property is all forms property other than real estate. See section 10 PPS Act
  2. See fact sheet : Personal property securities - PPSR overview
  3. See fact sheet : Receivership, administration and liquidation
  4. Section 55, PPS Act
  5. See fact sheet : Purchase money security interests
  6. Section 150, PPS Act
  7. Section 153, PPS Act
  8. Regulation 3.2, PPS Regulations, provides that motor vehicles, watercraft and aircraft must be described by vehicle identification number or other unique identifier if the property is not held by the grantor for business purposes. Also see section 10, PPS Act, definition of consumer property.
  9. Section 156, PPS Act
  10. Section 157, PPS Act
  11. Section 178, PPS Act
  12. Section 179, PPS Act
  13. Section 180, PPS Act
  14. Section 181, PPS Act
  15. Section 182, PPS Act
  16. Section 172, PPS Act
  17. Section 172(3), PPS Act
  18. See part 7.4, Criminal Code Act 1995 (Cth)
  19. Section 190, PPS Act

Please note: This fact sheet provides general information about PPS reform and does not constitute legal advice. You should seek legal or other professional advice to consider the application of the PPS Act to your individual circumstances.

Retention of title and leasing

Application of the Personal Property Securities Act 2009 (Cth)

The PPS Act is a law about security interests in personal property. Personal property is generally all property other than land, fixtures and certain statutory interests. A 'security interest'[1] is an interest in personal property that in substance secures payment of a debt or other obligation.

This definition incorporates standard forms of security such as mortgages and charges. It also covers some transactions not currently considered traditional security interests, in particular:

  • retention of title clauses in contracts whereby a purchaser has possession of property, however does not acquire title from the vendor until the full purchase price is paid, and
  • operational leases of personal property for a term exceeding 12 months.

Under the PPS Act, retention of title (ROT) suppliers and lessors will become secured parties with a security interest in the collateral, and will have a purchase money security interest (PMSI)[2].This is a certain type of security interest which elevates the interest of the secured party to a higher status relative to other interests.

What are the benefits of PPS reform to retention of title or lease suppliers?

The main benefit to ROT suppliers or lessors under PPS reform is that the PPS Act provides clear rules to be followed in order for ROT suppliers or lessors to protect themselves in the event of a buyer's or lessee's default or insolvency. However in order to maximise this protection the secured party must register their security interest in the property supplied or leased.

Under the PPS Act, ROT suppliers and lessors enjoy the benefit of what is known as PMSI super priority. This means that a registered security interest of a ROT supplier or lessor takes priority over all other, including earlier, security interests in the collateral where the requirements of the PPS Act have been complied with.

A second benefit of a registered ROT or lease-based security interest is the protection it offers against a trustee in bankruptcy or liquidator. Under pre-PPS Act law, some retention of title clauses were ineffective when disputed by a liquidator because the particular form of the transaction, derived from the words used in the clause was decisive. Under the PPS Act, the emphasis is no longer on the particular legal form the transaction takes, but on its substance, i.e. does the clause amount to a security interest? As a result, such a security interest in the property supplied, if registered, means that the property will not be available to a trustee in bankruptcy or a liquidator.

In the case of companies, the Corporations Act 2001 (Cth) has been amended to include the concept of 'PPS Act retention of title property'[3] . This is property which is owned by the secured party but is in possession of the receiver/ lessee of the goods[4] . If such a security interest is not registered on the Personal Property Securities Register (PPSR), it will vest in the company[5]. The effect of this would be that the secured party could not seize the collateral on the liquidation and their only recourse would be to prove the debt against the liquidator and be paid out as an unsecured creditor.

The registration of a lessor's security interest on the PPSR also reduces the potential for innocent third parties to be deceived by the lessee's possession of the property and therefore believe that no other interests exist in it.

In order to give businesses an opportunity to adjust to PPS reform and the need for registration on the PPSR in particular, there was a 24 month transitional period which ended 31 January 2014.

The effect of this transitional period is that ROT suppliers or lessors who entered into agreements before 30 January 2012 that create security interests in the property supplied or leased had two years to register those interests (transitional security interest or TSI). A registration after 31 January 2014 will result in the secured party losing the benefit of the transitional provisions. The PPS Act provided a 24 month transitional period to register pre-existing security interests at no cost. The transitional period ended at the end of January 2014. Normal registration fees apply for transitional registrations as from 1 July 2015. If a security interest loses its 'perfected' status its priority ranking is not preserved.

What this means is that the 'perfected' status of the security interest will only begin from the time of registration on the PPS Register, instead of the earlier date allowable under the transitional provisions if registered before the end of 31 January 2014.

Agreements entered into after 30 January 2012 are not subject to the transitional arrangements.

It is important to note that the PPS Act does not require a registration to be made in respect of all supplies or leases to the same buyer or lessee. A single registration may cover subsequent security interests in property that is supplied under later agreements. However, in all cases registration will be at the choice of the secured party as it is not mandatory.

In light of these potential benefits, businesses should consider reviewing their practices, as well as, consider their exposure and the relative benefits and risks of whether to register on the PPS Register.

For details on the process of registration, see the PPS Register and priorities fact sheet. The PPS Register will be inexpensive and user friendly.

The below table outlines some factors that retention of title suppliers and lessors might consider when deciding whether to register.

The list is not in any particular order and is not exhaustive, and businesses should seek their own professional advice on whether to register.

Considerations for retention of title suppliers and lessors when deciding whether to register
Factor / Commercial consideration
Pre-existing client relationship /
  • Does the term of supply/lease prohibit the grant of further security interests in the collateral?
  • The history of the supplier-client relationship and degree of trust
  • What pre-lending due-diligence has revealed about the solvency and other details of the goods receiver/lessor
  • Market knowledge and standards of behaviour

Risk profile /
  • What is the likelihood that the retention of title supply or lease agreement will be dishonoured?
  • Are transactions of the type being contemplated by the secured party often dishonoured?
  • The numbers and value of dishonoured agreements in the secured party's books

Collateral value /
  • The value of the collateral
  • The proportion of the value of the collateral to the total assets of the business

Nature of supply /
  • The frequency of supply
  • The value of supplies to a client
  • If multiple supplies to one client, the aggregated value of the multiple supplies

Commerciality of enforcing /
  • Costs of enforcement against collateral of that type
  • Practicalities of enforcement: Is the collateral perishable? Is there a market for second hand collateral of that value?
  • The likely depreciated value of the collateral

Cost of transitioning to and adopting PPS practice /
  • The cost of developing back office functions, up-skilling staff and transacting with the register.

There is no clear formula to determine whether a given business should register its security interests. All these factors are relevant but none in their own right are determinative.