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Personal Property Security

 

 

 

The Personal Property Securities Act 2009 (Cth) ('PPSA') came into effect on 30 January 2012 and radically changed the laws affecting interests in Personal Property. The PPSA created at new national scheme for the registration of Security Interests over Personal Property. The Register is known as the Personal Property Securities Register and is commonly referred to as the PPSR.

Need help registering your Security Interests?

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The PPSA affects almost every business that supplies goods (whether by sale or lease) or extends credit with security. If used effectively the PPSA creates new rights and protections for businesses that did not exist previously. However, businesses that ignore the PPSA and fail to register a Security Interest on the PPSR face a real risk of suffering significant losses in ways that would not have occurred prior to 30 January 2012.


In broad terms, businesses seeking to protect themselves against a customer's insolvency by taking security over a debtor's Personal Property will now need to Register a Security Interest on the PPSR.

This page is intended only as a summary of the key concepts and operation of PPSA and includes links to useful instruction videos and resources. For more information or advice about any particular circumstance, please feel free to call and speak to one of our Commercial Lawyers.

Personal Property
Securities Register (PPSR)

 

The Personal Property Securities Register ('PPSR') is the register where details of Security Interests in Personal Property can be registered and searched. The PPSR is administered by The Insolvency and Trustee Service Australia (ITSA).

Go to the Personal Property Securities Register

What is a Security Interest?

 

A Security Interest is an interest in Personal Property provided for by a transaction that, in substance, secures payment or performance of an obligation. Specifically, a Security Interest includes an interest in Personal Property provided by any of the following transactions:

  •     a lease of goods or equipment,
  •     a hire purchase agreement,
  •     a consignment,
  •     a chattel mortgage, and
  •     a fixed or floating charge.

Generally, when you buy Personal Property on hire purchase or use Personal Property as security for a loan or another type of credit providing transaction (eg Retention of Title sale), the transaction creates a Security Interest in the Personal Property.

Why Register a Security Interest

 

If your business does not register a Security Interest and a debtor goes into bankruptcy or is placed into liquidation, you will not be able to enforce any security you have over the debtor's Personal Property. Instead your position will be that of an unsecured creditor, meaning generally that you can only expect a payment after all secured creditors and the costs of the bankruptcy/liquidation are paid in full. This will often mean the difference between getting paid in full or paid only a few cents in the dollar or nothing at all.

The PPSA contains rules for determining priority between Security Interests in the same Personal Property. The prompt registration of Security Interest is, therefore, essential so that priority is not lost to a party who acquires a later Security Interest but perfects the Security Interest by registration before your business.

Even where your business is able to recover payment from a debtor or enforce an unregistered Security Interest before the debtor goes into bankruptcy or is placed into liquidation, unless the Security Interest was registered on the PPSR it is likely that the payment you received will be recoverable by the Trustee/Liquidator as a preferred payment.

Therefore, businesses can improve the way they manage their credit risk by adopting a practice of promptly registering Security Interests on the PPSR over goods they supply or lease to customers.

How to Register
a Security Interest

 

Plain English Instructional Video on How to Register a Security Interest

Create a Registration on the PPSR

 

Personal Property

 

Personal Property is broadly defined. With a few exceptions only, it covers any property someone can own other than land, buildings and fixtures.

Personal Property includes, without limitation:

  • goods,
  • plant & equipment,
  • cars, boats, plates,
  • crops & livestock,
  • art,
  • licenses, shares,
  • accounts receivable, contract rights, and
  • intellectual property
 

Retention of Title

 

Retention of Title refers to a type of clause often included in a contract for the sale of goods where a purchaser may take possession of goods, but does not acquire title to the goods from the seller until the full purchase price is paid. There is typically a right to repossess the goods if the purchaser breaches the contract.

New rules about Retention of Title clauses are the most likely to affect small and medium enterprises (SMEs). Businesses can no longer rely solely on retaining title to their goods to reclaim them if they supply to customers who become insolvent or bankrupt. Instead, to preserve their title to the goods in these circumstances they now need to register a Security Interest in relation to the goods on the PPSR.

Significantly, a supplier of goods pursuant to a Retention of Title clause will have a Purchase Money Security Interest. Once registered, this gives the supplier a form of 'super priority'. That is, the interest of the Retention of Title supplier will take priority over all other Security Interests in relation to the secured property. Conversely, if a Retention of Title supplier fails to register their Purchase Money Security Interest they will lose the title to the property in the event of the bankruptcy of liquidation of the purchaser.

For wholesalers or other continuous supply of goods situations, the supplier needs only to register once a Purchase Money Security Interest for each customer not for every supply.

Leasing

 

The PPSA treats leases and bailments for a term of more than one (1) year, or more than 90 days for serial numbered goods (such as motor vehicles and boats), as PPS Leases. PPS Leases are Security Interests. Owners of Personal Property who grant a PPS Lease over their property should, therefore, register their interest on the PPSR to fully protect their interest. Failure to do so may mean that other secured parties could have a superior claim to the goods if the lessee became insolvent.

Purchase Money Security Interests

 

The PPSA gives particular recognition to the common practice of businesses providing a loan or credit for the purchase of particular property or inventory.  Under the PPSA, the Security Interest created is called a Purchase Money Security Interest ('PMSI'). Significantly, a PMSI can have priority over other Security Interests in the same property.

The most common form of PMSI is one that arises pursuant to a Retention of Title provision in a contract. However, the holder of a PMSI must register the PMSI on the PPSR to fully protect their interest in the goods supplied subject to the Retention of Title provision.

A business with a PMSI may, therefore, benefit from a 'super-priority' which defeats all other Security Interests in the property. This includes Security Interests created and registered before the PMSI. For example, a supplier of goods that holds a PMSI will be entitled to priority over the holder of an all assets Security Interest (eg, a bank) where the customer becomes insolvent. However, certain registration requirements must be complied with in order for the PMSI to benefit from the super-priority.

PPSR Publications

 

The following PPSR publications may be of assistance:


Please note, Roberts Legal does not warrant the accuracy of the above publications.

 

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