It has now been over four years since the Personal Properties Securities Act 2009 (Cth) (PPSA) took substantive effect on 30 January 2012.However, many businesses remain oblivious to the PPSA and the serious consequences that can follow its oversight. So what is the PPSA and what is the risk in ignoring it?
The PPSA established a new, national system for managing and recording all secured lending over personal property. For businesses, it applies to stock and inventory, plant and equipment and vehicles. If your business sends out or receives ‘property’ on consignment, allows suppliers to take goods on credit or accepts such property as security for outstanding debts, then you need to understand the PPSA. If you ignore the PPSA on the basis that “it doesn’t affect me” or “this is how I’ve done business all my life, I’m not going to change”- then you’re likely to lose.
The PPSA created a system of priority for secured and unsecured creditors. It is effectively a ‘first registered, best dressed’ policy, whereby the first creditor to register generally takes primacy over later creditors (registered or unregistered). This means that if your business hasn’t registered its “security interests” on the Personal Property Securities Register (PPSR), then you could miss out when it comes to reclaiming the property you have title to or security over.
A basic example will help to illustrate this concept:
Your company imports and assembles bicycles. You sell some to “Bike Co” on credit. Your terms and conditions state that “We retain all title to the bicycles until invoices are paid in full” but you do not register a security interest on the PPSR. You have transferred possession but not ownership of the bicycles to Bike Co.
Bike Co goes under and appoints a liquidator. You try to get your bicycles back but the liquidator claims they are now owned by them.
Under the old system, if your invoice asserted ownership until goods are fully paid, you could probably get your bicycles back. But under the PPSA, you lose ownership because you failed to protect your ownership rights and obtain “secured creditor” status by registering a security interest. Any Bike Co property which is unencumbered by a perfected (registered) security interest now vests with the liquidator (Corporations Act 2001, section 588FL). If you had registered, then you would likely take priority over the liquidator and recover your property.
The danger for businesses which ignore the PPSR is clear: if you fail to register, you may get nothing, not even your own property. If you’re still saying “Huh?” to the term ‘security interest’, PPSA or PPSR, then seek advice and get your interests registered soon to help protect your business and your livelihood.