Practical Tips for Businesses and Lenders Overwhelmed or Confused by the PPSA

Practical Tips for Businesses and Lenders Overwhelmed or Confused by the PPSA

It is just over one month since the Personal Property Securities Register (PPSR) commenced operation. Here, we share our experiences so far.

PPSA in a nutshell

The Personal Property Securities Act 2009 (Cth) (PPSA) affects all businesses that hold security interests in personal property. Businesses which do not have possession or control of personal property used as collateral (eg stock and equipment supplied or hired to customers) should have a security agreement in place that satisfies the requirements of the PPSA (eg updated trading terms) and should register their security interest on the PPSR.

Businesses that do not take these and other steps may not have the ability to seize or otherwise deal with their personal property upon a debtor’s default and will have limited or no rights to the personal property if their customer or borrower suffers an insolvency event.

Traps when searching the PPSRWe recently searched the PPSR to check that two fixed and floating charges had migrated from the ASIC Register to the PPSR. We searched the PPSR by ACN and by company name but neither search resulted in any security interests over the company being displayed.

By trying other methods we were able to track the charges down. The PPSR Registrar has since acknowledged that the problem is widespread and is attempting to resolve the issue.

Tips when registering a security interest

It is vital to do registrations carefully; otherwise, your business may not have security over the relevant assets. For example, your customer or borrower may operate its business through a trust. In those circumstances, the trustee is the legal entity, not the trust itself. We can advise how best to register security interests over personal property held by trusts. The registration process raises various legal questions about the security interest and ticking the wrong box can have serious consequences. For example, it is necessary to indicate whether or not the security interest is a Purchase Money Security Interest (PMSI). A validly registered PMSI will take priority over prior registered security interests (in most circumstances). However, a registration that indicates the security interest is a PMSI in circumstances where it is not a PSMI will be invalid.