You may or may not know of the Personal Property Securities Register (‘PPSR’). But, if you are a purchaser, a financer/lender or a business owner dealing with personal property, you definitely should learn about the PPSR. This Blog Post is your jargon-free guide to better understand the Register.
The PPSR is an electronic database which acts as a noticeboard of security interest in personal property. The PPSR is governed by the Personal Properties Security Act 2009 (‘PPSA’). Any party with a security (the “Secured Party”) must register their security on the PPSR. This ensures that they have a public record for their security over the Personal Property of the party that they are dealing with (the “Grantor”). Therefore, the Grantor grants to the Secured Party, security over the Personal Property. The Secured Party then registers the security to ensure it can use it in the event the Grantor collapse into insolvency.
The PPSR is worthy of your attention if you are any of the following:-
- A buyer looking to purchase goods;
- A lender looking to lend funds;
- A lessee looking to lease goods; or
- A seller looking to sell goods on credit/hire.
If you have a Security Interest in Personal Property, to make certain you are protected, it is crucial that you turn your mind to registering your interest on the PPSR.
Likewise, if you are looking to secure Personal Property it is equally important to search the PPSR to ensure you are making an informed decision.
But… What is Personal Property, and what is a security interest?
What is personal property?
Personal property includes all property other than land, buildings, and fixtures to land. This includes intangible assets such as the goodwill of a business, intellectual property and licenses and tangible property such as vehicles, stock in trade, and cash.
This property can be owned by an individual, or a company.
Do I have a Security Interest?
A Security Interest is established upon a person (the “Secured Party”) taking an interest in the Personal Property of another (the “Grantor” – as they grant the secured party the interest).
Once a security agreement is formed, the “Personal property” is known as the ‘collateral’.
A Personal Property security interest can be likened to a mortgage interest, the difference being the latter secures land and the former secures Personal Property.
Your interest must fall into either one of the two types:
Type 1: In-Substance Interest
An interest in Personal Property that is created by a transaction or agreement, where the agreement secures the payment or performance of an obligation.
You may have an in-substance interest where:-
- You loan funds for the purchase of personal property [1]
- You sell goods on ‘retention of title’ terms;
- You consign goods;
- You agree to sell goods on a hire-purchase arrangement;
- You supply goods on credit;
- You provide a service where payment is secured by a security interest in particular property of the customer; and/or
- You lease or hire goods
[1] This is known as a ‘Purchase Money Security Interest’ (‘PMSI’), and is where a security interest is granted over particular goods to secure debt incurred in acquiring the goods in question.
Example: Lending Co agrees to lend Tony money to purchase a car. To ensure Lending Co is repaid, Tony agrees to use the car as security (ie. ‘collateral’). Lending Co registers a security interest over the car. This is a PMSI.
Type 2: Deemed Interest
There are specific circumstances that may give rise to a Security Interest, these situations are deemed security interests and include:-
- The interest of a transferee under a transfer or an account;
- A consignor who delivers goods to a consignee under a commercial consignment
- A lessor or bailor of goods under a PPS lease
So, you have a Security Interest against Personal Property – what next?
Registration! A written agreement may not be enough to protect you, therefore it is vital that you register your interest on the PPSR (also known as ‘perfecting your interest’). Failure to perfect your interest may result in being left out of pocket or losing your goods, for good!
Shockingly, ‘retention of title’ clauses are no longer enough – in the event you sell goods to a customer on agreement that you retain ownership until such time as you are paid, the PPSA provides that the goods sold on credit, belong to the customer. It is only by registering your interest, that you are truly protected.
So, we’ve convinced you to register – how soon is too soon?
The earlier you register, the better. Your rights are protected from the time of registration, and first in time equals first in line.
If someone else registers their interest first, you could lose out as that secured party is afforded greater priority.
The matter of priority presents itself where there are competing security interests in the same personal property (‘collateral’). The criticality of such generally goes unnoticed until such time as when the Customer/Borrower/Debtor is unable to pay their debts on time, and at this stage, it may be too late.
Once insolvency or bankruptcy is deemed, a third party is appointed to liquidate the debtor’s assets to distribute to its creditors. This distribution accords with a specific hierarchy.
This hierarchy is as follows:-
- Payment of Liquidator’s costs and expenses;
- Secured Creditors – Creditor in control of the collateral
- Secured Creditors – Purchase Money Security Interests (‘PMSI’)
- Secured Creditors – In order of time of registration
- Unsecured creditors
- Shareholders
Do I really need to check the register?
Absolutely! Checking the register is essential to safeguarding your interest.
Benefits for purchasers
Conducting a search of the register will inform you if the goods you are looking to purchase are being used as security for debt or other obligation.
For example, Steve purchases a used boat from John. Steve does not search the PPSR prior to purchasing the boat. John then defaults on his loan repayments. The Bank then repossess ‘Steve’s’ boat.
Steve would still have his boat if he had first conducted a PPSR ‘grantor search’ on John and ensured John arranged for the interest to be discharged.
To search, is to be secure!
Benefits for financers
Prior to offering finance, conducting a PPSR ‘grantor search’ on a potential borrower to check whether they have offered their personal property as security for a debt or other obligation.
Benefits for business owners
- To form part of the credit check process prior to offering to sell goods on a hire-purchase or credit arrangement;
- Checking to clear any undischarged registrations against their business before selling their business or applying for a loan.
The governing legislation attached to the PPSR contains complex legal jargon and can make this process appear daunting. Further, the stringency of the PPSA means that simple registration errors may invalidate registration altogether.
If you believe that you have a Security Interest in Personal Property that is unregistered, we can help. Get in touch with our experienced Commercial Law team today to assist in protecting you, by perfecting your interest.
Authors:
Rachel Arldt – Lawyer
Disclaimer: The information in this post is general in nature. This does not constitute legal advice and should not be relied on as such. Please contact one of our Lawyers if you are seeking advice about a specific legal matter.
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