The PPSR & your business
Launched in 2012, the Personal Property Security Register (PPSR) is an Australian Government online register of security interests in goods and other personal property – excluding land, buildings and fixtures - which is regularly used by buyers, sellers and financiers to check any financial arrangements on property.
The grace period of two years to register your security interests has now passed but the PPSR is an important part of your asset and debt management planning.
The PPSR replaced other Commonwealth, State and territory registers with 5 million security interest registrations transferred into the PPSR. It is part of the Personal Property Securities Act 2009 (PPSA).
Businesses can also register their property interests on the PPSR. For example, your business may have vehicles that have been acquired thanks to a lease agreement or via hire purchase. Any arrangements where there is a "security interest" may now be visible when a broker, lender or other interested party searches for company records for details of your company's financial position.
Businesses often provide stock, property or other assets but retain a security interest in those assets – be it under a loan arrangement, terms of trade, consignment and many other financial arrangements (for example, hire purchase, chattel mortgage or lease). In fact, there is a substantial list of the types of financial arrangements that are covered by the PPSR. The PPSR allows any organisation to register a security interest as a 'secured party'
Potential buyers for your business can use the PPSR to check if valuable second hand property is free of debt and safe from repossession, including goods such as machinery, equipment, vehicles and inventory. It is for this reason that it's vital that you maintain your PPSR records as debts are discharged.
When an issue arises involving financial arrangements or matters in business, for example a missed payment or receivership, creditors can take action to recover any outstanding amounts that they are owed. This can lead to bankruptcy for an individual or liquidation of a business where a trustee or liquidator determines the priority of the debts to be repaid. It also appears in the public domain when potential creditors are doing
The PPSR matters because it is a database that retains information about financial arrangements for any property that is registered. The PPSR allow "secured parties" to maximise the priority of their interest in the property supplied, ensuring that they have priority to get paid in the event of liquidation or bankruptcy.
Not only does the PPSR allow secured parties to maximise their interest, it also has a range of other advantages for buyers, lenders and investors.
The PPSR is one of the most important changes to business in many years. It means that ownership is no longer king if you get into a stoush about who owns what, because the PPSR determines who gets priority under a set of rules that distinguishes 'perfected' and 'unperfected' security interests.
You are in business and have supplied stock to a retailer. You haven't been paid for the stock but continue to supply to the retailer under normal terms of trade. When the next delivery arrives at the retailer it can't be delivered because the store is closed following insolvency. Your business hasn't been paid yet. You sold the goods on a retention of title basis so the stock belongs to you until the retailer pays you, right?
The answer is not necessarily. If your security interest in the stock is not on the PPSR, then your rights may not be recognised even if you can prove you have legal title
If, however, a security interest is registered for property or stock that has been provided to a business but is yet not fully paid for, then the provider of that stock may have first priority to recoup any outstanding amounts.
Businesses should use the PPSR to register their interests in property such as terms, retention of title, leasing out valuable goods (e.g. hire-purchase) to ensure that they are able to recover a debt in the event that the customer can't pay or becomes insolvent.
If you are buying assets or entering into agreements, it's also important to check the register to find out who has a security interest over the property involved.
While it's very important to register your security interests and check the PPSR, it's equally important to maintain your records.
As mentioned earlier, your financial arrangements become part of the company search any lenders or potential buyers will review as part of their due diligence. If you've lapsed in your maintenance of PPSR or any debt records, this can impact a buyer or lender's decision to proceed.
The PPSR is complex and ensuring that your security interests are registered properly requires advice, as does understanding the implications of the PPSR for you, your business or debt recovery. Please contact us on 02 9957 4033 or via email to discuss your current situation.
See www.ppsr.gov.au for more information and to access the PPSR.
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Last updated February 2014. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.