Business Law

Navigating loans secured over personal property: avoid getting caught out by the PPSA

BAL Lawyers10 June 2018

Many Canberra businesses do not yet realise that the security regime established under the Personal Properties Security Act 2009 (Cth) (PPSA) is a fundamental part of doing business in Australia.

For some businesses, this headline should be met with the reaction, “Really? Again?”.

However, many businesses do not yet realise that the security regime established under the Personal Properties Security Act 2009 (Cth) (PPSA) is a fundamental part of doing business in Australia. It is apparent to us that many Canberra businesses remain unaware of the system. Unfortunately, we keep seeing these businesses getting caught out, often losing out on the money they’re owed and the goods they’ve supplied.

The PPSA has been in force for over six years now. In essence, it established a new Australian framework for streamlining and strengthening secured loans of personal property. Think mortgages; if you don’t pay back your loan, the bank gets to keep your house – the house is ‘security’ for the debt. The PPSA governs all instances of secured loans where they relate to personal property, rather than real estate. So, it’s a big deal. If you think your credit terms allow you to take back the goods you have sold, yet you have no PPSA registration, then think again.

The risks

If you think about it, the PPSA framework captures virtually every Canberra business—anyone who supplies goods on credit to other businesses, provides or receives goods for the purpose of further sale or loan, or accepts personal property as security for outstanding debts needs to understand the PPSA system. This is true for stock and inventory, plant and equipment, vehicles, and so on. If you don’t protect your interests in these goods, you might lose out on what you think you bargained for.

Ultimately, the PPSA sets up a system “of priority”, where some creditors will rank higher than others if the debtor goes into administration or liquidation. Long story short, secured creditors come out on top—they can claim back their security. If you’re not protected in this way, you’ll have to compete with all of the other unsecured creditors; once an administrator or liquidator is appointed to a struggling company, your property vests in them to be divided up. A lot of the time, unsecured creditors may only get back a few cents in the dollar; sometimes, nothing at all.

How to protect your interests

So, what do you have to do to protect your security interest? You must register it.

Even if your contract states that you retain title to the goods until they’re completely paid for, if you fail to register your security interest on the Personal Property Securities Register (PPSR), you might not have a leg to stand on when you try to recover the property you lent or the money you’re owed if an administrator or liquidator is appointed.

Not only do you need to do this for everyone who you supply to, but you need to do it within certain time frames. Under the PPSA, if you want your debt to take priority over others in the event of a debtor being managed by an external administrator or wound up, you have to be quick about it.

For ‘inventory’ (which includes stock supplied for further sale or lease, or for use as a material in the production of something else), you have to have registered your security interest by the time the business you’re giving it to takes possession of it. For other goods (so, perhaps equipment you’ve supplied), registration has to happen within 15 days of handing over possession.

Although there are very limited circumstances in which courts can extend these deadlines, the operation of the rules in practice has shown that there is very little that will cut it—even people who have shown they were taking active steps to register at the time were knocked back.

It should be clear by now how important it is to register these interests. However, it might all seem easier said than done; certainly, registering these interests can be a bit of a foreign concept in itself. The key, though, is knowing that you need to. When it comes to navigating the nitty-gritty of the process, do not hesitate to contact a member of our experienced Business and Corporate team to help you through it.

For advice on the Personal Property Securities Register, please contact Shaneel Parikh – Lawyer, or Katie Innes – Director at BAL Lawyers.

Original Article published by BAL Lawyers on The RiotACT.

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