If you’re a business owner supplying goods or equipment to customers on trade, you’re probably operating under Terms of Trade. And you probably think those Terms of Trade will provide adequate protection if things go wrong.
But if your Terms of Trade don’t include provisions allowing for the register of security interests on the PPSR, you might not be as protected as you think.
Registering your interest in valuable goods on the PPSR or Personal Property Securities Register, could be the difference between your financial freedom and financial ruin. Registering allows you to claim the goods back if your customer doesn’t pay for them or becomes insolvent. It’s an essential part of any smart business owner’s risk management strategy.
Here’s what the PPSR is, what it does, and why you need it.
What is the PPSR?
The PPSR or Personal Property Securities Register is a register administered by the Australian government. It allows businesses to register their security interests (also known as collateral) over personal property.
The PPSR provides a single, national register for security interests over personal property and establishes a system for the creation, priority and enforcement of security interests in personal property.
Replacing over 70 existing Commonwealth, State and Territory security registers, it’s a big step forward in the streamlining of the laws surrounding personal property securities.
How does it work?
As a central register of security interests over personal property, the PSSR allows:
- Finance companies and other businesses to register their security interests over personal property, and
- Secured parties, buyers and other parties to search the PPSR to ascertain whether a security interest is registered over a specific piece of personal property.
Registering a security interest with the PPSR over a specific piece of personal property indicates you have certain rights over that personal property. Typically this takes the form of the right to take ownership of that property if the current owner fails to meet specific obligations (like defaulting on a loan).
Who can use it?
Anyone can use the PPSR. It’s accessible 24/7, and search results are immediate. Minimal fees apply for searches and registration.
What is personal property?
Under the Personal Property Securities Act 2009 (PPS Act), ‘personal property’ has a wide definition. Excluding land, buildings and fixtures, it covers any property someone can own. As such, it includes:
- Plant and equipment
- Cars, boats and planes
- Crops and livestock
- Licences, shares, accounts receivable, contract rights
- Intellectual property
The PPS Act generally applies to security interests in goods as long as the goods are located in Australia or the grantor of the security interest is an Australian entity.
What is a security interest?
A security interest is created when someone buys personal property on hire purchase or uses personal property as security for a loan or other type of credit transaction.
In this transaction, you are the secured party – also known as the creditor, lender, supplier or lessor – and your customer is the grantor or debtor, borrower, supply customer or lessee.
Here’s how it works in practice: when you supply goods or equipment on trade to your customers, you create a security interest. This security interest secures either your payment for those goods or equipment, or the performance of an obligation in return for those goods or equipment.
It doesn’t matter whether you supply those goods or equipment on a fixed charge, floating charge, hire purchase agreement, consignment or lease of goods – a security interest will be created either way.
Why register your security interests on the PPSR?
If you fail to register your security interests on the PPSR and one of your debtors goes into bankruptcy or liquidation, you assume the role of an unsecured creditor.
As an unsecured creditor, although you retain title to those goods, you lose your claim to those goods. This means that that when payments are made or assets are distributed, you’re at the back of the queue, behind the secured creditors. And depending on the level of debt your customer is in, this may result in you being paid very little, or nothing at all.
The PPSR and timely registration protect you against this.
Under the PPS Act, the general rule is that a registered security interest has priority over an unregistered security interest, regardless of when it was created and whether there was knowledge of the existence of the earlier interest.
So when you register your security interests on the PPSR, you’re ensuring your rights to the property in question will be recognised. As mentioned earlier, this usually means the right to take back the property in the event the debtor is unable to meet your Terms of Trade.
Register often, register early
You might be wondering when you need to register your security interests on the PPSR.
A good rule to follow is to register often, and register early.
Under the PPS Act, you can register a security interest before that interest actually arises. All you need are reasonable grounds to believe that you are, or will become, a secured party.
And if you’re in the business of providing goods or equipment on trade to customers, that’s precisely your position.
Act now, or risk losing your rights to recovery
If your Terms of Trade don’t contain provisions allowing for the registration of security interests on the PPSR, or if they do, but you’ve failed to register them – now is the time to act.
Assuring your position as a secured creditor with priority rights, registration is essential if you want to retain your rights to recovery. Fail to act, and you may pay for it later.