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Registering security interests on the PPSR

When supplying goods or services, taking a security interest is a good way to ensure you receive payment in the event your customer or client becomes insolvent.

• Registration is important to ensure that your security interest is valid and enforceable as a matter of law. It is also important in determining which secured creditor has priority. A failure to provide the necessary details in your financing statement or to lodge it within the prescribed timeframe may mean that the priority of your security interests diminishes.
• If you fail to register your interest you have a high risk of losing your claim or interest over the secured property to others who have registered. It is also critical to monitor registrations to ensure that they are valid and to undertake renewals within the timeframe where required to avoid the losing your interest over the registered property.

It is a common misconception that security agreements and retention of title clauses will guarantee a party’s right to realise secured assets when other contracting parties are unable to meet their debts.

In our sixth episode in this series, we discuss the importance of formally registering a security interest on the Personal Property Securities Register ( PPSR ) as a critical step in protecting your right to enforce a security interest.      

What i­s the PPSR?

Created by the Personal Property Securities Act 2009 (Cth) ( PPSA ), the PPSR is a centralised public listing of all security interests claimed over personal property in Australia. The PPSR is, in effect, a public notice board. By registering security interests on the PPSR, other interested parties are aware of those interests.  

What is personal property?

‘Personal property’ includes all property except land and rights, entitlements or authorities excluded by or under a law of the Commonwealth, a state or territory. Personal property includes a range of tangible property, for example, livestock or vehicles, as well as intangible property, such as copyrights and trademarks. It will include things like cash, stock, office equipment, cars, boats, furniture, and machinery.

What is a security interest?

A security interest is an interest in personal property that arises in the context of a transaction, where payment or performance of an obligation is secured. The registration of a security interest over personal property or an asset will protect your interest against other parties (for example, liquidators) who seek to also claim an interest in the same property.

Common examples of security interests may include hire purchase agreements, consignments, leases of goods, fixed and floating charges and conditional sales agreements. It is now common take security over personal property under a General Security Agreement. The person or organisation who grants a security interest in a transaction is known as a ‘grantor’, while the party who obtains the security interest is known as the ‘secured party’.

It is important to note that not all transactions of this nature will give rise to a security interest. For instance, certain licences will not be considered to be security interests.

Why should I register my security interest?

Registration is important to ensure that your security interest is valid and enforceable as a matter of law. It is also important in determining which secured creditor has priority in enforcing against the grantor’s assets.

How do I register my security interest? 

The registration of security interests can be a complex process. A failure to provide the necessary details in your financing statement or to lodge it within the prescribed timeframe may mean that the priority of your security interest diminishes, preventing you from realising the secured property if enforcement becomes necessary.

It is possible to register a security interest yourself following the instructions on the PPSR website, but if you are registering complex or particularly significant security interest or will need to make a large number of registrations, we recommend consulting a lawyer to ensure that you get the registration right.

What happens if I don’t register my interest?

It is critical that a security interest you are entitled to is registered over an asset on the PPSR. Failing that, any interest in personal property will remain ‘unperfected’ and there is a high risk of losing your claim or interest over the personal property to others who have registered. Unperfected interests carry a lower priority than those interests that have been ‘perfected’ through registration and allow other parties to assert a stronger claim over the relevant property. 

What happens if more than one security interest is registered?

In circumstances where multiple security interests are registered in respect of the same property, the secured creditor with the highest priority will have first right to enforce over the secured assets. The perfection of a security interest by registration will affect the priority of your interest over others in the same property.

‘PMSI’ and ‘perfected’ interests

The highest priority security interest is a purchase money security interest ( PMSI ). Generally speaking, a security interest is a PMSI if the grantor used the funds provided by the secured party to acquire the relevant property. A ‘retention of title’ provision in an agreement for sale of goods, for example, will give rise to a PMSI and will need to be registered.

A PMSI has a ‘super priority’ over all other registered security interests, including those registered earlier than the PMSI itself. 

To have the benefit of this super priority, a PMSI must be correctly registered and identified as a PMSI, within a certain period of time – a PMSI over tangible collateral, for example, must be registered before the grantor obtains possession, whereas a PSMI over non-inventory tangible property must be registered within 15 business days of the grantor taking possession. If it is registered correctly but not explicitly identified as a PMSI, or is registered outside of the prescribed timeframe, it loses its status as the highest-ranking security interest and merely becomes a ‘perfected’ interest (which is a security interest constituted by a written agreement and validly registered on the PPSR). 

A security interest is otherwise generally ‘perfected’ upon registration.

Where multiple perfected interests are registered in respect of particular property, the security interest with the highest priority will be that registered first in time, with the most recently registered interests being of the lowest priority.

Unperfected interests

Where an interest is ‘unperfected’, meaning it has not been registered or is not supported by a written security agreement, it will be rank behind a perfected interest. For example, a supplier who fails to register their security interest in unpaid goods arising under a retention of title clause in a supply agreement may find that, if the purchaser of the goods becomes insolvent, they are unable to enforce that clause to recover unpaid goods and that instead the goods are recoverable by a secured party with a registered security interest in them or the goods may ‘vest’ in the grantor (i.e., become its property, even if they were not paid for). This is an illustration of how traditional legal concepts of ‘ownership’ are subordinated under the PPSA regime.

If there are multiple unperfected interests, the highest-ranking interest among the unperfected interests will be the interest that ‘attached’ to the property first. ‘Attachment’ occurs when the grantor has a right to the relevant property (or the power to transfer its rights in the property to the secured party) and the secured party provides value for the security interest (for example, a loan) or the grantor undertakes another act by which the security interest arises.

It is important to note that although these priority rules apply in most circumstances, however, there are instances where the priority status of a security interest may be influenced by other factors. 

Can a PPSR registration lapse?

Most registrations on the PPSR will only be valid a period of 7 years unless a shorter duration was specified on registration. It is critical to monitor registrations to ensure that they are valid and to undertake renewals within the timeframe where required to avoid losing your interest over the registered property.

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PPSR Series: Do you have a security interest under the PPSR? Getting it right is vital

When it comes to the personal property securities register (ppsr), we can’t help but ask: “it’s been six years – what have we learnt”, to address this, madgwicks is  publishing an informative series of articles  over the next few weeks for those of you currently using the ppsr and those who may need to register the occasional dealing. the aim of these 6 articles is to help you better understand how the personal property securities act (ppsa) applies to you and to avoid the common pitfalls in registration..

Before a party can look at registering or enforcing a security interest, they need to ensure that they have a valid security interest for the purposes of  the   Personal Property Securities Act Cth 2009  (PPSA). Although this may seem obvious, it is not always clear whether there is a security interest capable of being registered on the Personal Property Securities Register (PPSR).

What you need to know

• A security interest is defined in the PPSA with specific types of transactions outlined in section 12(2).
• Some legislation specifically excludes certain interests that might otherwise fall within the definition of a security interest under the PPSA, including gaming licences, taxi licences, liquor licences and mining licences.
• Merely being granted a security interest is not in itself enough to give the person (Secured Party) to whom the security interest is granted full protection under the PPSA. The safest way to ensure a security agreement has been created is to have the agreement or act evidenced in writing and signed by the Grantor.

What is a security interest?

A security interest is broadly:

• An “interest” in personal property, includes a right in the personal property. This could be simply a contractual right – it does not need to be a proprietary interest;
• “Personal property” is defined very broadly to mean almost all property other than land (including fixtures attached to the land);
• It includes goods, inventory, motor vehicles, financial property (such as cash and bank accounts), intangible property (such as licences and intellectual property), contractual rights, and proceeds of other personal property;
• Secures payment or performance of an obligation – it  cannot be a security interest if the interest is not provided as some kind of security for payment or performance of an obligation.

The following types of transactions are specifically listed in the PPSA (section 12(2)) as being interests that could be security interests,  provided that  the transactions that provide for those interests in substance  secure payment or performance of an obligation :

• a fixed charge
• a floating charge
• a chattel mortgage (e.g. a share mortgage)
• a conditional sale agreement (including an agreement to sell subject to retention of title)
• a hire purchase agreement
• a trust receipt
• a consignment (whether or not a commercial consignment)
• a lease of goods
• an assignment
• a transfer of title
• a flawed asset arrangement

Excluded interests that cannot be security interests

However, some legislation specifically excludes certain interests that might otherwise fall within the definition of a security interest under the PPSA.

These include:

• Rights or entitlements granted by the Commonwealth or any Australian State or Territory which are declared by the law creating them not to be personal property for the purposes of the PPSA.
• Examples include gaming licences, taxi licences, liquor licences and mining licences.

Creating an effective security interest

To have a security interest that is legally enforceable requires some action – merely being granted a security interest is not in itself enough to give the person (Secured Party) to whom the security interest is granted full protection under the PPSA.

The degree of enforceability of a security interest is determined as follows:

1) A security agreement is  “an agreement or an act by which a security interest   is created, arises or is provided for”  or  some form of “writing evidencing such an agreement or act”  (which must be either signed or accepted by the Grantor).

The safest way to ensure a security agreement has been created is to have the agreement or act evidenced in writing and signed by the Grantor.

2) For a security interest to be enforceable: the security interest needs to have  attached  to the personal property (called “Collateral” in the PPSA).

A security interest attaches to Collateral if the Grantor has rights in the Collateral and either:

• accepts money; or
• does some other act by which the security interest arises (for example, the Grantor signs a contract).

This condition is usually fairly easy to satisfy – generally attachment automatically occurs.

The Grantor is generally the person who owns the Collateral (personal property).

3) For the security interest to be enforceable by the Secured Party, not just against the Grantor but also against third parties, the security interest must have attached to the Collateral and either:

• the Secured Party must have possession or control of that Collateral; or
• there must be a security agreement that covers the Collateral.

4) For the security interest to be enforceable by the Secured Party the security interest must be “perfected”. There are three main ways to perfect a Security Interest:

• Possession of the Collateral – this is generally mostly applicable to tangible assets;
• Control of the Collateral – this is generally mostly applicable to financial assets; and
• Registration of the security interest on the PPS Register.

It is important to ensure your documents actually give rise to a security interest. Many times we ask someone, who has registered an interest on the PPSR, for the document evidencing their security interest and they either:

• do not understand the request; or
•  rely on documents which do not actually give rise to a security interest.

If your security documentation is not in order, you are unlikely able to enforce your security interest under the PPSA.

As with all complex concepts relating to PPSA, getting it right from the start is vital. If you have any queries regarding security interests or need assistance in navigating through the issues discussed above, please contact Catherine Ballantyne, Special Counsel, on 03 9242 4744 or  [email protected]  for expert advice.

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Plain English Guide to Personal Property Securities Act – PPSA and PPSR

• March 21, 2022
• Jess Cumerlato

The PPSA is a single national law governing contractual security interests in personal property.

The features of the PPSA include:

• a searchable national online register for disclosing security interests;
• rules determining the priorities between security interests; and
• various enforcement remedies for secured creditors.

The PPSA matters for everyone involved with the extension of credit.  This includes businesses who receive loans from banks, financial institutions and other lenders. It also includes businesses who provide goods to their customers on conditional sale or leasing terms.   This Plain English Guide provides an overview of the PPSA and its importance.

What is personal property?

Personal property is essentially any form of property other than land and some other legislated exceptions.  It includes tangible property such as motor vehicles, boats, agricultural products and other goods. It also includes intangible property such as intellectual property, licences, accounts and financial property (shares, bonds and the alike).

What is a ‘security interest’ under the PPSA?

To qualify as a ‘security interest’ the interest in personal property must be ‘provided for by a transaction’. This means only consensual interests (i.e. interests provided by contracts or agreements) can be a ‘security interest’.

The ‘transaction’ element is a key point for creditors. It means that to claim a ‘security interest’ the creditor must have documented an agreement with their debtor that provides for the security interest. Example agreements include general security deeds and trading terms providing for retention of title.

Once the transaction element is met the interest must satisfy one of two alternative criteria. The first criterion is that the interest must, in substance, secure payment or performance of an obligation. Typical examples of this include fixed and floating charges and goods mortgages. Other examples include title retention arrangements such as agreements to sell subject to retention of title, goods leases and hire purchase agreements.

However that is not the end of it with ‘in substance’ security interests being identified in a very wide variety of circumstances. Indeed a significant source of litigation under the PPSA is over whether or not there is one of these ‘in substance’ security interests. Some further examples include contractual liens, pledges, assignments, step-in clauses in construction contracts, power of attorney provisions, termination rights, turnover trusts, and escrow arrangements.

The second criterion is that the interest is deemed to be a security interest even if it does not secure payment or performance of an obligation. Examples of where these ‘deemed security interests’ arise include certain consignments, leases, bailments and factoring arrangements. Again litigation often arises over whether one of these ‘deemed security interests’ exist.

The Personal Property Securities Register

The PPSA establishes a single national online real-time Personal Property Securities Register ( PPSR ) under which personal property that is or may be subject to a security interest can be registered. The PPSR serves these functions:

• Better protection for secured creditors when their debtors become insolvent.
• Information for searchers about existing security interests in personal property so that they may make informed decisions over whether they should purchase the property or lend money in relation to it.
• Improved priorities for secured creditors when enforcing debts.

Effective registration of the security interest is the most important way of ensuring ‘perfection’ of a security interest. The reason ‘perfection’ matters is that the security interest is completely extinguished if it is not perfected and the debtor enters external administration.

Unfortunately the registration process with the PPSR is complex and technical and demands precise data entry. The Australian and overseas experience is that insolvency practitioners and competing creditors fiercely contest registrations when they identify anything potentially defective. Even slight registration defects can result in the loss of the secured property in an insolvency.

The usual priority rule is that the first creditor to register is the creditor who wins. However there are numerous ‘ifs and buts’ to that rule including:

• later correctly registered ‘purchase money security interests’ ( PMSIs ) beat earlier registered interests;
• later correctly registered security interests in accounts prevail over earlier registered interests;
• security interests perfected by control have priority over security interests perfected by other means; and
• banks and other ADIs have priority over all other security interests in accounts they hold.

PMSIs are especially important for suppliers of goods. They typically arise in retention of title arrangements and certain consignments, leases and bailments. PMSIs also matter for lenders when they advance money so that their borrower may acquire an asset.

Correctly structuring the transaction and registering the PMSI is absolutely essential for later enforcing it against competing creditors and insolvency practitioners. Challenges frequently arise for secured parties claiming PMSIs because they must prove that the PMSI exists. For example, the secured party must prove that it is their goods that they supplied and that remain unpaid, or that the loan they advanced was actually applied so that the borrower could acquire rights in the asset claimed.

Continuation of security interests

A neat feature of the PPSA is that security interests generally survive when something happens to the property. Examples include:

• If a farmer sells a horse the security interest continues in the horse and attaches to the proceeds of sale.
• If a mechanic fits the wheels to a car then the security interest still continues in the wheels.
• When grapes are converted into wine the original security interest in the grapes continues in the wine.

An exception to these rules is when the personal property becomes a fixture to land. In that situation the PPSA stops applying to the property. To cover off that risk the creditor’s usual strategy is to also obtain an equitable charge or mortgage in the land so that they may later lodge a caveat if the debtor defaults.

Loss of Security Interests

The most common threats to security interests are ineffective registrations and failures to register at all. Both result in the extinguishment of the security interest if the debtor becomes insolvent and enters external administration. Therefore creditors who fail to effectively register risk entirely losing the property they financed and provided to the debtor.

Further security interests do not always survive when something happens to the property. Examples of when the security interest may be lost include where the debtor:

• transfers the property to someone else;
• sells or leases the property in the ordinary course of business;
• sells unregistered property.

Enforcement

The PPSA also provides enforcement rights for secured creditors. These enforcement rights permit secured parties to seize property from a defaulting debtor and then retain or sell the property.

The main limitation on these enforcement rights is that they do not permit entry on to the debtor’s land without their consent. This is even where the security agreement expressly authorises entry. Therefore it is essential for the creditor to apply to the Court for an order authorising entry if they want to recover property from the debtor.

The PPSA matters for everyone looking to advance credit and take security in personal property because:

• By using the PPSR they may make informed decisions about whether to advance the credit.
• It requires that they properly document security agreements so that they may claim their security interests.
• By effectively registering they materially improve their prospects with recovering assets if the debtor becomes insolvent.
• It provides them further rights when the property is sold, affixed to or turned into something else.
• It provides enforcement remedies when the debtor defaults.

The PPSA though is complex and technical legislation to navigate. Its legal challenges include:

• identifying when a transaction may provide for a security interest;
• correctly documenting the security agreement so that it creates the security interest;
• effectively registering on the PPSR;
• proving the priority position for the creditor;
• legally enforcing the security interest.

For more information on the Personal Properties Securities Act contact our Commercial Advice lawyers on +61 2 9895 9200.

Disclaimer: The information provided in the document is a general summary and is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.

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Personal Property Securities Register (PPSR) – An Essential Guide

In an ever-changing business and financial landscape, ensuring that your interests are protected is paramount. This is where the Personal Property Securities Register (PPSR) steps in.

The PPSR is a critical legal tool that plays a pivotal role in safeguarding the rights of creditors and businesses by providing a centrali s ed platform to register and search security interests in personal property .

What is the PPSR?  

The PPSR is a government-operated online database established to manage and record security interests in personal property . Personal property , in this context, refers to movable assets such as equipment, vehicles, inventory, intellectual property, and more.

By registering security interests on the PPSR, creditors and lenders can establish their priority in case of insolvency or default by the debtor. This priority determines who has the first claim on the assets and can greatly influence the outcome of debt recovery proceedings.  

How does the PPSR work?  

Registration of security interests.

Individuals and businesses can register their security interests on the PPSR. A security interest is a legal right that a person or entity has in someone else’s property as collateral for a debt or obligation. This could include situations like loans, leases, hire purchase agreements , or consignments.  

Searching the Register

Anyone can search the Personal Property Securities Register to find out if there are existing security interests registered against specific personal property. This helps potential buyers, lenders, and other parties assess whether the property they are dealing with has existing claims or encumbrances on it.  

Information Included

The PPSR provides information about the secured party (the person or entity with the security interest), the grantor (the owner of the property), and details about the security interest itself. This information helps parties understand the nature of the interest and the collateral involved.  

Secured Transactions

When parties enter into transactions involving personal property as collateral, they can check the PPSR to ensure that the property isn’t subject to existing security interests. This helps in making informed decisions and mitigating risks.  

Priority of Interests

The PPSR also establishes the priority of competing security interests. In case multiple parties have claims over the same property, the order of registration can determine who has a higher priority claim in case of default or insolvency.  

Termination and Amendments

Security interests can be removed or amended on the PPSR when the underlying obligations are fulfilled, the collateral is sold, or other changes occur. This keeps the register up-to-date and accurate.  

Legal Protections

Registering a security interest on the PPSR provides legal protections to the secured party. If the grantor defaults on their obligations, the secured party has a better chance of recovering the property or its value.  

Online Access

The PPSR is accessible online, making it convenient for users to conduct searches and registrations from anywhere with an internet connection.  

Why is the PPSR important?  

The PPSR is of paramount importance for several different reasons:  

Creditor Protection

The PPSR offers a crucial layer of protection for creditors and lenders. When lending money or extending credit, there’s always a risk that the borrower might default or become insolvent. By registering their security interests on the PPSR, creditors can establish a legal claim to the borrower’s assets in case of default. This significantly increases the likelihood of recovering the owed amounts, thus providing a measure of security to creditors.  

Priority and Fairness

The PPSR establishes a clear framework for determining the priority of competing claims from different creditors. In situations where multiple parties have a stake in the same collateral, the PPSR helps determine the order in which they are paid. This ensures fairness and predictability, preventing disputes and legal battles over the rights to specific assets.  

Transparency

The PPSR promotes transparency by allowing interested parties, including potential buyers, lenders, and investors, to search and ascertain whether personal property has any existing security interests. This information is crucial for making informed decisions and assessing risks before entering into transactions involving valuable assets.  

Risk Mitigation

Businesses and individuals engaging in transactions involving personal property often face risks associated with hidden debts or liabilities attached to those assets. The Personal Property Securities Register mitigates these risks by providing a reliable source of information about existing security interests. This allows parties to identify potential pitfalls and make strategic decisions to minimise their exposure to risk.  

Streamlined Legal Framework

Before the establishment of the PPSR, the rules governing security interests in personal property were often complex and varied from jurisdiction to jurisdiction. The PPSR streamlines and harmonises these rules, creating a consistent legal framework that is easier to understand and follow. This simplification benefits both creditors and debtors by reducing confusion and potential legal disputes.  

Support for Business Transactions

The PPSR supports a wide range of commercial transactions, such as secured lending, leasing, and trade credit. For businesses, this means that they can confidently engage in these transactions, knowing that their interests are recorded and protected. This support for business activities contributes to economic growth and stability.  

Efficient Debt Recovery

In cases of debtor default or insolvency, the PPSR plays a pivotal role in determining the priority of creditors’ claims. The registration of security interests on the PPSR can significantly impact the outcome of debt recovery proceedings, making the process more efficient and structured.  

Cross-Border Transactions

In today’s globalised economy, cross-border transactions are common. The PPSR provides a standardised platform that facilitates the recognition of security interests across different jurisdictions. This is essential for international trade and investment.  

Who manages the PPSR?  

The PPSR is overseen by the Registrar of Personal Property Securities, appointed by the Attorney General’s Department. This office is part of the Australian Financial Security Authority (AFSA), which is an agency in the Attorney-General’s portfolio.  

The Registrar’s role involves ensuring responsible management of the PPSR, making it accessible and reliable. They decide what can be registered, manage availability, and investigate any misuse. The Registrar can delegate these powers as needed.  

The AFSA Service Centre supports day-to-day PPSR operations. They assist with online searches and can provide phone-based searches at a higher cost. They also handle general inquiries for information not found on the website.  

What are the Best Practices and Considerations when using the PPSR?  

When using the PPSR, there are several best practices and considerations to keep in mind to ensure effective and accurate use of the system:  

Understand the Basics

Familiarise yourself with the purpose and functioning of the PPSR.  

Understand the terminology used, such as “security interest,” “secured party,” “grantor,” etc.  

Conduct Thorough Searches

Always perform searches on the PPSR before entering into transactions involving personal property. This helps you identify any existing security interests on the property.  

Search using accurate details to ensure you retrieve relevant information.  

Accurate Registration

When registering a security interest, provide accurate and complete information about the parties involved and the collateral.  

Double-check the details before submitting the registration to avoid errors.  

Prioritise Timeliness

Register your security interest as soon as possible to establish your priority over potential future security interests.  

Monitor and Update

Regularly monitor the PPSR to identify any changes or terminations of security interests that may affect your transactions.  

Verify Parties’ Information

Verify the identity and legal status of the parties involved in transactions to ensure they have the authority to register or grant security interests.  

Seek Legal Advice

If you’re unsure about the legal implications of a transaction or the registration process, consider seeking legal advice to ensure compliance with relevant laws. Our team at Progressive Legal has the necessary expertise to help you out.   

Keep Records

Maintain records of your PPSR searches and registrations for future reference and evidence in case of disputes.  

Understand Priority Rules

Learn about the rules governing the priority of security interests to understand how competing claims are resolved.  

Continuous Education

Stay informed about any updates or changes to PPSR regulations, procedures, or guidelines.  

Due Diligence

Conduct thorough due diligence before entering into transactions, especially larger ones involving substantial property interests.  

Use Authorised Channels

Access the PPSR through official and secure channels to ensure data privacy and accuracy.  

Regularly Review Procedures

If you are a business, establish internal procedures for PPSR usage, and periodically review and update them to ensure compliance and accuracy.  

Be Cautious with Online Services

If using third-party services for PPSR searches or registrations, ensure they are reputable and reliable.  

Stay Organised

Keep well-organised records of your PPSR activities, including registrations, searches, and relevant communications.  

Key Takeaways

In a modern world characterised by dynamic economic activities and complex financial transactions, the Personal Property Securities Register serves as a safeguard for businesses and individuals alike.

By providing clarity, transparency, and legal protection for security interests in personal property, the PPSR contributes to a more secure and efficient commercial environment. Embracing the PPSR and understanding its nuances empowers us to navigate the intricacies of modern commerce with confidence.  

If you need legal advice on using the PPSR, feel free to contact our team at Progressive Legal. Simply give us a call on 1800 820 083  or make an enquiry below.  

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Australia: Personal Property Security Register (PPSR) explained

It is crucial that people who have a security interest in personal property take it seriously or risk losing their security interests.

Many businesses are struggling to understand the implications of the Personal Property Security Register (PPSR).

In this article we have provided a simple summary and a timely warning about what to do, following changes that were implemented to the Personal Property Securities Act (PPS Act) in 2014.

The PPSR explained

The PPSR is a national, electronic register of security interests in personal property which was established on 30 January 2012.

It includes security interests in goods, vehicles, intellectual property and any other personal property, but does not apply to land.

A "security interest" includes any interest in personal property which is created by an agreement that secures a payment or performance of an obligation to another person (for example a fixed and floating charge over an asset).

The PPSR is the only register which determines whether a security interest:

• is enforceable; and or
• takes priority over other interests.

What about a security interest granted before 30 January 2012?

The PPSR transitional period ended on 30 January 2014 and anyone who was granted a security interest before 30 January 2012 needs to ensure that those interests are registered on the PPSR.

Failure to have a security interest registered on the PPSR will mean that those interests will be unenforceable if a subsequent security interest holder registers an interest on the PPSR.

Who is most likely to be affected?

This is particularly relevant for anyone who is engaged in the business of:

• Leasing and hiring equipment;
• Supplying goods based on retention of title;
• Mortgaging equipment; and
• Imposing a charge over the property of individuals or companies as security for loan repayments.

Note: Amendments to the PPS Act which commenced on 1 October 2015 means that businesses which frequently use fixed term leases with a duration of between 90 days and 1 year over serial numbered goods such as motor vehicles, aircraft, watercraft and other items may no longer need to register those leases once the amendment takes effect.

How you can do a search of the PPSR

Some security interests prior to 30 January 2012 have been migrated onto the PPSR (for example, charges registered on the ASIC Register of Company Charges) whilst others may not have.

Even where charges have been 'successfully' migrated onto the PPSR, issues have arisen during the migration process which mean there is no guarantee that all migrated charges are properly registered on the PPSR.

Therefore it is essential that a check be done.

To ensure you are protected it is important that you search the PPSR but before searching the online register you will need to set up an account. Once you have an account and pay a small fee you can search by serial number, individual or by company to locate a security interest.

The consequences if you don't register

Failure to register interests on the PPSR may result in the priority of your interests being lost to other parties with competing interests.

For intellectual property interests, this is the case even if your security interests have already been recorded on the IP Registers maintained by IP Australia.

Why simply claiming a 'retention of title' won't work

You also should register your interest in goods supplied to a customer where you and/or your business have not received full payment. This will assist in the recovery of any debt that may be owed.

Under the PPS Act a person who supplies goods on the basis that the supplier retains ownership until paid, or leases goods to a customer, can be treated as having a security interest in the goods.

A failure to register can mean that the goods are lost to their customers' creditors even though the owner of the goods has not changed.

There has been much written about the PSSA and this article is not intended to be anything but a simple 'heads up' message so you have the essential details.

Identifying the issues is one matter, but having a workable plan for you or your business is another matter entirely.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Securing your interest on the PPSR

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If your business has entered into a commercial arrangement for the supply of your personal property, you may be able to protect your interest in that personal property by registering a security interest on the Personal Property Securities Register (PPSR).

Amidst increased awareness of the benefits of the PPSR, more of our clients have been asking to register a security interest on the PPSR to protect their interest and, where possible, ensure it is prioritised over the interests of third parties.

Steps for securing your interest

1. does your agreement create a security interest.

An agreement creating a security interest typically takes the form of a contract, whereby the lender hands over personal property in exchange for payment or performance of an obligation.  Certain agreements such as leases, bailments and consignments usually create a security interest and, as explained below, can potentially create a special type of security interest known as a purchase money security interest (PMSI).

2. Is your personal property capable of registration on the PPSR?

Personal property is essentially all property other than land and federal or state-granted rights, entitlements or authorities (such as water rights or government-issued licences).

3. Create a PPSR account and activate your secured party group

To register a security interest on the PPSR, you must create an account with the PPSR and a secured party group (SPG).

Your SPG should comprise each person or company who has an interest in the secured property.

Every SPG is provided a bespoke access code to identify and manage its registrations. It is typical for a company to maintain multiple SPGs to account for situations where a company has multiple agreements involving different secured parties.

4. Application for registration

The PPSR application will ask you to describe the personal property and the security interest you are seeking to register.

The collateral type is either ‘consumer property’ – namely, private property used for commercial purposes, such as a privately owned vehicle – or ‘commercial property’ – being commercial property used for commercial purposes.

The collateral class assigns the personal property to one of the following categories – ‘tangible property’, ‘general property’, ‘intangible property’ or ‘financial property’.  Depending on the collateral class selected, there may be sub-classes and further information required for effective registration.

When describing your security interest, consider whether the agreement creating your security interest is capable of registration as a PMSI, as this will give you priority over third party security interests in the personal property (without regard to the time at which the registrations occurred). If, however, you register your interest as a PMSI when it is not, your registration will not be effective.

The PPSR will ask you further questions to determine what rules apply to your security interest. For example:

• whether the registration is transitional (transitional registrations concern security interests that existed before 30 January 2012);
• whether the registration is subordinate to another registration;
• whether the collateral forms part of the grantor’s inventory (such as raw materials to be consumed or on-sold);
• whether the collateral is subject to your control (that is, whether you are in possession of the collateral or the grantor requires your consent before dealing with the collateral); and
• the duration of registration.

5. Timing for registration

For registrations where the grantor is a corporate entity, ensure your security interest is registered on the PPSR within 20 business days after signing the agreement (or, where the grantor becomes insolvent, no more than 6 months before the grantor declares insolvency).

The timing rules for PMSIs depend on whether the personal property supplied to the grantor forms part of the grantor’s inventory (e.g. products consumed or on-sold as part of the grantor’s business). If the personal property will form part of the grantor’s inventory, register your interest as a PMSI before the grantor obtains possession. If the personal property does not form part of the grantor’s inventory, you have 15 business days from the date the grantor obtains possession or your personal property.

6. Remember to notify the grantor

Once the registration has been completed, the PPSR will issue a verification statement as proof of your registration. Unless the grantor has agreed to waive its right to receive a copy of the verification statement (which would only apply for registrations relating to commercial property), the grantor is entitled to receive a copy of the verification statement as soon as is reasonably practicable after registration.

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16 Sep 2021

You have just sold goods on credit to a new or existing customer. Your customer is late on payment and you may be concerned about their solvency. How do you make sure you secure your position?

For businesses that sell goods on credit, PPSR Registrations and Terms of Trade are critical tools to protecting their business. The PPSR is frequently overlooked or misunderstood.

What is the PPSR?

The Personal Property Securities Register ( PPSR ) is the national register of security interests over personal property. It is regulated by the Australian Financial Security Authority ( AFSA ) .

The purpose of a registration on the PPSR is to place third parties on notice of your interest in personal property. The PPSR replaced the ASIC register of company charges and a myriad of other State and Federal registers as well as common law “retention of title” clauses.

A retention of title clause is common in contracts and terms and conditions of trade, and states that the ownership of goods is retained by the seller until full payment is made by the buyer.

If your agreements and/or terms of trade are properly drafted, such a clause will entitle you to register your interest in the goods against the buyer on the PPSR.

A search of the PPSR will alert any prospective purchasers of the secured goods and insolvency practitioners to your security interest in the goods.

In the event of insolvency or default on the agreement, a valid PPSR registration means you will be classified as a “secured” creditor” as opposed to an unsecured creditor.  In turn, as a secured creditor, you will receive priority in any dividend distributions to be made.

Generally, if there is a default or insolvency you have the right to enforce your security interest. This could mean that you may be able to repossess your goods and/or seize the property. There are clear rules and legal processes for enforcing your security interest you can read more here .

Pursuant to section 10 of the Personal Property Securities Act 2009 (Cth) ( the Act ) “ personal property ” is any property other than, land or a right, entitlement or authority granted under legislation, or property that is otherwise declared by law not to be “ personal property ”.

Some examples of personal property are:

• Machinery and equipment;
• Motor vehicles, boats and planes; and
• Bank accounts.

What happens if I do not register my interest?

You must comply with the statutory timeframes to ensure your security interest is valid.

Generally, you must register your interest on the PPSR by the earlier of either 20 business days of agreement or more than six months before insolvency of the customer.

In the matter of Relux [1] , Doka Formwork Pty Ltd ( Doka ) supplied materials to Relux. The Court identified an error in the calculation of business day and the Honourable Justice Sifris held that the security interest registered in favour of Doka was only valid over the materials supplied within the 20 business days prior to registration. The materials supplied earlier were not secured by the registration.

A purchase money security interest ( PMSI ) is a type of registration which grants you priority over all other registered interest holders, irrespective of the timing of your registration.

A PMSI must be registered either before the customer takes possession (if the personal property forms part of the customer’s inventory), or within 15 days of the customer taking possession. However, a PMSI may be defeated using the mechanism available under section 64 of the Act.

A security interest will be ineffective and unenforceable if you fail to register in time. In limited and exceptional circumstances, you may be entitled to apply for an extension of time to register.

How to register a security interest on the PPSR?

To register your interest, you will be required to provide the following information:

• Collateral type (‘commercial’ or ‘consumer’);
• Transitional status (based on the timing of the security interest);
• Collateral class (‘motor vehicle’, ‘all present and after acquired property with or without exceptions’ or ‘other goods’);
• Any additional information (if applicable and dependant on the collateral class); and
• Grantor details.

This is a highly technical and prescriptive area of law. You should seek legal advice from a commercial lawyer prior to registering your interest to ensure you have provided accurate and adequate descriptions of the goods. You run the risk of your security interest being void if you do not complete your registration correctly.

How to remove an interest on the PPSR?

Disputes and issues can arise with PPSR registrations. If you believe a PPSR registration has been secured over your personal property incorrectly, you may be entitled to apply for removal. This can be done with the assistance of a lawyer communicating directly with other party or if necessary, via the court. It may also be done via the AFSA.

You will need to ensure that you have the right legal grounds and forceful representation to have a security interest on the PPSR removed quickly.

How we can help.

It is imperative that businesses selling goods on credit, are aware of their rights and entitlements under the PPSA in order to protect their interests. Particularly in an economic environment where there are many financially distressed businesses that can impact the solvency of each other.

If you have any questions regarding the PPSR registration process, the drafting of your terms and conditions or any disputes arising out of an existing PPSR registration we can help.

Please contact our office on 1300 907 335 or complete an online enquiry form to obtain advice from an expert lawyer in PPSR disputes.

[1] Carrafa, Gountzos & Lofthouse (as liquidators of Relux Commercial Pty Ltd (in liq)) & Anor v Doka Formwork Pty Ltd [2014] VSC 570.

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Thinking | 25 May 2016

Assignments, late registration and vesting of security interests under the Personal Property Securities Act

The decision in Re Carpenter International Pty Ltd (Administrators Appointed) [2016] VSC 118 again highlights the importance of registering security interests on the Personal Property Securities Register ( PPSR ) within the prescribed timeframes.

The case considers the requirement to register security interests under contracts which are assigned and also the circumstances upon which the Court may exercise its discretion to extend the time for registration.

Carpenter International Pty Ltd ( Carpenter ) was in the live cattle export business. Its business involved purchasing cattle through del credere agents then moving the cattle to a feedlot for quarantine and testing and then, subject to those checks, exporting the cattle. Carpenter went into voluntary administration in March 2015.

The Administrators challenged claims by three livestock agents ( Agents ) that they each had perfected security interests in the cattle. The Court made orders in September 2015 giving the Administrators leave to dispose of the cattle. Consequently, the proceedings concerned the parties’ entitlements to the $4m in proceeds of sale.

The Agents acted as del credere agents for vendor farmers by guaranteeing the purchasers’ payment of the purchase price. The Agents would receive a commission, and if they paid the vendors, they would take assignment of the vendors’ rights under the sale contracts. The Agents contended that they held security interests in cattle on the basis of retention of title clauses in both their own contracts with Carpenter and also the contracts between the vendors and Carpenter which were assigned to them.

In circumstances where the Agents took an assignment of the contracts made between Carpenter and the vendors, the Agents failed to register their security interests within 20 days of those contracts.

Fundamentally, the Court was required to determine whether the Agents had security agreements for the purposes of section 20 of the Personal Property Securities Act 2009 (Cth) (PPSA) and whether their security interests were registered within the prescribed time frame. This involved determination of a “battle of the forms” and whether the Agents’ terms including their retention of title clauses were incorporated into their dealings with Carpenter. There are well settled principles dealing these issues and so this article does not discuss them.

Instead, this article focuses on the Court’s consideration of two important issues, namely:

• Whether an assignment of a security agreement affects the calculation of time under section 588FL of the Corporations Act 2001 (Cth) ( CA ); and
• The grounds upon which a Court will exercise its discretion to extend the time for registering a security interest under section 588FM.

The Honourable Justice Cameron of the Supreme Court of Victoria upheld some of the Agents’ claims (which are not the subject of this article) but also ruled that other security interests in the sale proceeds vested in Carpenter pursuant to section 588FL of the CA.

Vesting of Security Interests

Pursuant to section 588FL CA, where a creditor fails to register a security interest:

• six months before the critical time – in this case, the appointment of the Administrators; or
• within 20 days after the security agreement that gave rise to the security interest came into force;or
• within such later time fixed by the Court (under section 588FM); or
• the security interest vests in the company, effectively extinguishing the creditor’s claims to the collateral.

Effect of assignments

The Court considered the proper construction of the words ‘the security agreement that gave rise to the security interest came into force’ found in section 588FL.

The Court found that the contract between a vendor and Carpenter constituted a security agreement for the purposes of section 20 PPSA since the contract ‘created, gave rise to or provided for’ the relevant security interest. The Court rejected the Agents’ argument that the security interest arose only upon the payment of the purchase price to the vendors and assignment of the contracts to the Agents, and determined that the existing security interest was merely transferred to the Agents and that a new security interest was not created.

The Court held that the assignment of a contract (giving rise to the security interest) does not alter the requirement to register within 20 days of the original contract coming into force. The Court reasoned that it was untenable to permit a new 20 day period each time a security interest was assigned or became enforceable, as this would permit an abuse of the registration system, create uncertainty and the increased vulnerability of vendors.

The Court found that the 20 day period for registration set out under section 588FL commenced from the date of the execution of the contracts. Accordingly, where the Agents had failed to register the security interest within the prescribed timeframe, they vested in Carpenter upon the appointment of the Administrators.

The Court stated that it was the Agents’ responsibility to ensure their security interests were registered and noted that they could have either required the vendor to register the security interests, sought an extension of time for registration under section 588FM, or alternatively, registered a security interest themselves, observing that a creditor could register a finance statement in circumstances where they believed on reasonable grounds that they will become a secured creditor (section 151 PPSA).

Extension of time

Under section 588FM, a Court may extend the time to register a security interest if it is satisfied that the failure to register was accidental or due to inadvertence, and is not of such a nature to prejudice creditors or is otherwise just and equitable to grant relief.

The Agents submitted that its failure to register in time was due to inadvertence because it failed to understand the registration requirements and the effects of an assignment of the contracts. It was argued that the Agents believed it was not required to register the security interest until the contracts had become unconditional (when the cattle had passed quarantine and testing).

The Court considered earlier authorities noting that section 588FM had been applied liberally.

The Court found that the Agents were aware of the registration requirement and of the effects of vesting under section 588FL, but was mistaken as to when the 20 day period commenced. However, the Court determined that the Agents’ failure to register on time was not due to inadvertence. Rather, the evidence showed that the Agents did not have any intention of registering its security interests because it believed that Carpenter could and would pay its debts in the ordinary course.

The Court also considered whether it would have exercised its discretion to grant an extension if the discretion had been enlivened. As to the discretionary factors, the Court stated:-

• Delay in registration – Even if the delay in registration is substantial, it will not itself preclude an extension, because the significance of the passage of time is mainly related to the possibility of competing interests over the same collateral having arisen. There was no evidence of any competing interests having arisen during the delay.
• Prejudice to creditors – The mere fact that an extension would reduce the dividend of other unsecured creditors is not itself sufficient to prevent an extension being granted. Reduction in dividend was the only relevant prejudice that unsecured creditors would suffer, which they would also have suffered if the Agent had registered in time. If some prejudice to unsecured creditors other than a reduced dividend can be shown, the Court may decline to exercise its discretion under section 588FM . The prejudice that must be shown is prejudice from the failure to register in time, not prejudice from the granting of an extension.
• Delay in application – Little weight would be placed on the fact that the extension application was made some months after the appointment of the administrators. The Agent believed that they registered in time to avoid vesting under section 588FL . In its view, there was no need to apply for an extension. Until it was clear that the Administrators were going to argue that the security interest vested in Carpenter, it would not have been necessary for the Agent to seek an extension.
• Timing of Registration – Neither the timing of registration, only hours prior to the appointment of the Administrators, nor the fact it occurred after learning of Carpenter’s potential insolvency precluded the Court from exercising its discretion.
• In the result, the Court determined that even if its discretion had been enlivened, it would not have exercised it due to the reasons behind the Agent’s decision to delay registering their security interests.

Practical implications

• An assignment of a security agreement does not necessarily create a new security interest.
• Upon taking an assignment of a security agreement, assignees must be aware that they may be taking on an unperfected security interest and that they are at risk. Accordingly, a prospective assignee should first ascertain whether the assignor has registered its security interest.
• Where the performance of a contract is conditional upon the happening of an event, the time to register a security interest provided for by the security agreement starts when the contract comes into force and not when it becomes unconditional.
• When considering the granting of an application for an extension of time, the prejudice that must be shown is prejudice from the failure to register in time, not prejudice from the granting of an extension.

Katherine Payne

Katherine is an insolvency and commercial litigation specialist with a focus on the PPSA and its implications.

Alexandra Lane

Senior associate.

Alexandra is a commercial litigator with a broad practice in commercial disputes and insolvency matters.

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Are communications between receivers and liquidators privileged?

The decision in Re Forge Group Construction Pty Ltd (in liq) (Receivers and Managers appointed); ex parte Jones [No 2] [2016] WASC 87 confirms that while some communications between liquidators, receivers and their respective solicitors can be privileged, it is not necessarily always the case.

Personal property securities get a makeover

After more than ten years of operation, the Personal Property Securities Act 2009 (Cth) ( PPSA ) and the Personal Property Securities Register ( PPSR ) are in line for a major overhaul.

The PPSA established a single, national set of rules of securing credit and other obligations using personal property.

The PPSA has a very long reach, covering most interests in personal property that secure the payment or performance of an obligation (regardless of the legal form and who has title to the property).  Such interests include general and specific security agreements, retention of title supply arrangements, leases, hire purchase and consignments, as well as asset transfers and trusts that secure the performance of an obligation. Certain lease, consignment and debt assignment transactions are also deemed to be security interests even if they do not secure payment or performance of an obligation. The Act applies to most types of tangible and intangible property including equipment, machinery, goods, inventory, building materials, extracted minerals and hydrocarbons, crops, livestock, ships, boats, aircraft, motor vehicles, shares, managed funds, financial instruments, accounts receivable, bank accounts, contract rights and intellectual property. The only significant exclusions from the Act’s coverage are land, water rights and mining and resource tenements and some other government licences.

Businesses that do not correctly perfect security interests that they hold (usually by registering on the PPSR) run the risk of losing their rights to collateral (being the property that is subject to a security interest) if:

• the grantor of the security interest becomes insolvent; or
• there is a competing security interest in the same collateral; or
• the collateral is transferred to a third party, even if the transfer is not permitted under the security agreement and the transfer occurs outside of the ordinary course of business.

Draft exposure bill released

A draft exposure bill to amend the PPSA has been released by the Australian Attorney General for public consultation. Subject to stakeholder views and Government approval, the Amendment Bill and proposed new Personal Property Securities Regulations will be introduced to Parliament.  Once Parliament approves the legislation to amend the PPSA, there will be a delay period for commencement to allow for administrative and operational change, including the build of a new PPSR.

The draft exposure bill indicates the Government intends to implement most of the recommendations of the 2015 Review of the PPSA . The 2015 Review made 394 recommendations, approximately 230 of which recommended changes to the Act while the balance either recommended no change or further consultation on particular issues. The proposed amendments are numerous and substantial.

Key changes to the PPSR registration process

Key changes should make the PPSR registration process easier, more flexible and less prone to user error without detracting from the fundamental objectives of the PPSA. The overhaul will:

• simplify the collateral classes for the purposes of registration. The 30 existing classes and sub-classes will be dramatically reduced to 6 classes that should be more intuitive to use;
• allow a single registration to be made against more than one collateral class. Currently each registration can only cover one collateral class;  
• simplify registration for collateral held on trust by the grantor of a security interest;
• no longer require a registration to distinguish between consumer and commercial property;
• no longer require a registration to indicate if collateral may include inventory;
• no longer require a registration to indicate whether a security interest is subordinated; and
• no longer require a registration to indicate whether the secured party is claiming a purchase money security interest (for example, sales subject to retention of title and the interest of a lessor under a lease or an owner under a hire purchase agreement).  PMSI priority will remain an integral part of the PPSA, it just won’t be necessary to flag a PMSI claim in a registration.

Other significant changes

Some of the other significant changes include:

• removing the concept of ‘chattel paper’ from the PPSA. Chattel paper financing, as practised in some other countries, has never been a significant part of the Australian commercial landscape so this change should streamline the Act without causing any material detriment;
• amending the concept of a ‘PPS lease’ to remove all references to ‘bailment’.  This should help clarify that the concept covers lease, rental and similar possessory interests of goods, where the person in possession pays the owner for the use of the goods, but it does not include the kind of bailment that occurs when a person has possession of goods merely to provide a service (such as transport, storage or repair) to the owner in respect of those goods. This change addresses an issue that has generated considerable uncertainty since the introduction of the PPSA; and
• removing the provisions in the PPSA that define ‘circulating assets’ and stipulate when they are subject to ‘control’.  The circulating asset provisions will be relocated to the Corporations Act, as the concepts are only relevant in the context of corporate insolvency, which is regulated under the Corporations Act.  There will be complementary amendments to the Corporations Act, including new definitions of ‘circulating asset’ and ‘circulating asset control’. The circulating assets provisions have never had any internal relevance to other parts of the PPSA but they have created endless confusion.

What it means for business  

The proposed amendments to the PPSA and the PPSR will make the legislation and the register easier to use and they should be welcomed by business and other stakeholders.  However, in the short term, they may also necessitate some changes to contracts, documents and IT as well as business practices and processes.

If you would like to learn more about the changes or discuss them with one of our PPSA experts, please reach out to one of us. 

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PPSR Registrations – what are they and why are they so important for businesses?

At Coulter Roache we build insightful legal partnerships to help you meet the challenges of today while planning for tomorrow.

What are PPSR Registrations?

The Personal Property Securities Register (PPSR) is an online register of security interests in personal property, such as cars, goods, or company assets. Anyone can search the PPSR to see if there is a registered interest in personal property.

You have a security interest in property if you have an agreement that you can reclaim property if a debt is not repaid to you. For example, secured car loans, hire-purchase agreements for goods, or leases.

Personal property is anything other than land, buildings and fixtures, including:

• Crops and livestock
• Patents and copyright
• Debts and bank accounts
• Commercial licenses

By registering your security interest on the PPSR, you publicly declare that you have an interest in the property that you have supplied. This means that you will have a legal right to be a priority to be paid or get your goods back.

How do I register a security interest?

Registrations to the PPSR can be made on the PPSR website. A separate registration needs to be made over each security interest you wish to register.

A registration can last for 7 years, 25 years, or have no end date.

Some registrations can only be made for a maximum of seven years. These include registrations made over property to be used by individuals rather than companies, and registrations made using the serial-number of goods, such as cars and boats.

There are different registration fees payable at the time of registration, based on the length of registration.

When do I need to register my security interest?

Registrations on the PPSR should be made as soon as possible. A registration needs to be made within 20 working days of the security agreement being signed by the customer or more than six months before the customer starts insolvency.  If more than one secured party has a security interest in the same property, there are rules about who has priority. The secured party with the highest priority also has the highest claim to the collateral. A failure to register a security interest promptly can result in a situation where a third party’s registration has priority over yours.

You can renew your registration any time before it expires.

You should discharge a registration within 5 working days from the day that you are aware there is no longer a security interest, such as when a deal is no longer going ahead or when the debt is repaid.

Why are PPSR Registrations Important?

Registering your security interest on the PPSR provides you extra protections, including:

• Giving you more legal protection than a written agreement
• Helping you get your goods back if your customer goes insolvent, rather than the goods being sold for the benefit of all creditors
• Giving you priority to get your money back over unregistered creditors if your client goes insolvent
• Allowing an insolvency practitioner to find you by searching the PPSR

Some examples of circumstances where PPSR Registrations are especially important include:

• If you provide equipment or machinery to contractors through a hire purchase arrangement or lease, PPSR registration can, in some circumstances, allow you to retake possession of the goods if the contractor stops paying.
• Registration can help keep you first in line to reclaim or be paid for the goods even if your customer has sold the goods you have an interest in.
• When buying a business, goods or equipment, searching the PPSR will give you peace of mind that there aren’t any other registered interests in the items you are purchasing.

What businesses can do to enforce the security interest after a default?

Generally, you can enforce your security interest, for example, by repossessing your goods, if your customer defaults on the security agreement. It is important to remember that, when enforcing your security interest, you can only get back what you are owed under the security agreement, plus your legal costs. Any amount left over must go to other secured parties and the customer.

If there is more than one secured party with a security interest in the same property, there are rules about whose interest is a priority. The secured party with the highest priority has the first claim to the goods and can seize them from any secured party with a lower priority.

The first step to enforce your interest is to seize the goods from the customer. Where you have supplied goods to the customer, this means physically seizing the goods by a lawful method. Where your agreement covers other property, such as a bank account, license, or patent, seize the goods by giving the customer a notice of seizure.

Once the goods are seized, you can:

1. Sell the goods

You can sell the goods to recover the amount owed to you once you have notified the customer and any higher priority secured parties.

You must sell the goods for market value or a reasonably obtainable amount. The sale proceeds will go to the secured parties in order of priority, to cover the amount they are owed. Any extra goes to the customer.

Selling the goods will end all security interests in the goods.

2. Keep the goods

Keeping the goods means that any security interest in the goods will end, except for any that are higher ranking than your own.

You will only be able to keep the goods if you notify the customer and anyone else with a registered security interest, and that the other secured parties do not object.

3. Redeem the goods

Before you sell or keep the goods, the customer or a secured party can ‘redeem’ them by paying you the full amount they owe you, plus your enforcement expenses. They will then own the goods and you will no longer have a security interest in them.

4. Reinstate the security agreement

Before you sell or keep the goods, the security agreement can be reinstated if they pay you the full amount owed to you, plus your enforcement expenses.

You will then return the goods to the customer, and the security agreement will then continue as if there had not been a default.

What can Coulter Legal do to assist?

Our experienced Corporate & Commercial lawyers are able to assist you with the preparing security agreements to allow you to register a security interest,  registration of and enforcing your security interest on the PPSR.

Find the legal expertise you need and get in touch today.

Get started with our easy online form, send us an email or simply give us a call.

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Home » White Papers » Introduction to the Personal Property Securities Register

Introduction to the Personal Property Securities Register

Personal Property Securities Register – summary of paper

A practical look at the PPS Registry

Challenges in complying with the laws and access to the ppsr, risks and opportunities created for clients and advisors, important timeframes under the ppsr.

1. A big change in law

The Personal Property Security Act 2009 (Cth) (the PPSA) governs the validity, enforceability and priority of security interests in personal property. The PPSA commenced on 30 January 2012.

The first challenge may be educating your clients about the importance of the new law. Clients are often confused by the term ‘personal’ and assume that it relates to consumer and not business transactions.

The common law definition of personal property arises from one of the two classes into which English law divided property (the other being real property). An action for wrongful taking of property other than land was a personal claim for damages while land wrongfully taken could be recovered by a real action for repossession. Personal property at common law embraces all forms of property other than interests in land such as chattels, choses in action and wills.

The definition in the PPSA of personal property is a negative and expansive definition [1]. The PPSA defines personal property as [all] property (including a licence) other than:

(a) land; or (b) a right, entitlement or authority that is:

(i) granted by or under a law of the Commonwealth, a State or a Territory; and (ii) declared by that law not to be personal property for the purposes of the PPSA.

The PPSA provides new rules for the identification, classification, priority and enforcement of personal property security interests. The definition of security interest places emphasis on “the substance” of the interest and not necessarily, the form of the security interest [2]. The types of property that may become subject to a personal property security interest are widereaching and include four categories:

(a) Tangible property; (b) Intangible property; (c) All present and after-acquired property; and (d) Financial property.

The PPSA provides examples of personal property security interests including: Fixed charges, floating charges, chattel mortgages, conditional sale agreements, hire purchase agreements, pledges, trust receipts and leases of goods [3]. The PPSA also lists a variety of interests that are not security interests subject to the new law including fixtures upon land, interests claimed by pawnbrokers and liens [4].

A Purchase Money Security Interest (PMSI) is a new security interest created by the PPSA that gives the secured party a ‘super-priority’ over other creditors. It is a security interest taken in collateral to the extent it secures all or part of the purchase price of the collateral [5].

2. The Personal Property Securities Register

The Personal Property Securities Register (PPSR) is a single online register that has replaced over 70 separate registers and it an be directly accessed at the website www.ppsr.gov.au. The replaced registers include the:

• Register of encumbered vehicles (REVs); • Bills of sale registers; and • ASIC register of company charges.

The consolidation of the various registers involved the migration of data into the PPSR. One of the major hiccups was the failure to migrate some registrations such as company charges (1.5 million were transferred) and as some company charges were not effectively migrated some secured parties may need to re-register on the PPSR.

The PPSR also presents a radical change from the concept of nemo dat quod non habet, meaning, no one can give what one does not have. In the context of security, this is the assumption that security cannot be given to multiple parties. Commercial practice generally contradicts this proposition and the PPSR provides a mechanism for prioritising competing security interests in personal property by registration. The most important change, however, is that a registered security interest on the Register will have priority over the unregistered interest even if the unregistered was first in time [6].

Finally, because the PPSR is a public register it will change business processes and it will become a standard search conducted in a variety of business and consumer transactions. It may also increase the transparency of business transactions by providing a noticeboard of security interests registered against a business entity or natural person.

3. Using the PPSR

The PPSR website is straightforward to use and will be accessible to any user. It can be used by either a casual user (credit card) or you can apply for a 30 day account (payment terms).

PPSR searches and registrations are conducted on the same website and clients will be able to do their own registrations or instruct agents to register a security interest on their behalf. The PPSR website is operated by the Insolvency Trustees Services of Australia (ITSA) and ITSA has a call centre taking calls to assist users.

Many businesses have engaged agents to conduct ‘mass uploads’ rather than enter information on the website directly. These agents aggregate data on security interests and upload this information to the PPSR.

4. Noticeboard approach of the PPSR

Secured parties lodge a financing statement to register on the PPSR but the form of registration does not require full disclosure of a security interest. For some registers that were replaced by the PPSR the lodgement involves providing less information than what was disclosed to the redundant register (such as the ASIC register of company charges). The 6 Section 55(3) PPSA rationale for the level of disclosure to the PPSR has been described as the “noticeboard” approach.

The information required to be provided by a secured party in a financing statement is:

(a) Details of the grantor (i.e. ACN for an Australian company, ABN for a trust, ARSN for a responsible entity of managed investment scheme or date of birth for an individual); (b) Details of the secured party; (c) Address for giving of notices to the secured party; (d) Description of the collateral subject to the security interest; (e) Duration of the registration [7].

5. PPSR: What is the registration process?

The process for registration of a security interest on the PPSR is:

(a) A secured party lodges a financing statement (online by secured party or upload through agent); (b) The data is entered and then the Registrar returns a verification statement by email; and (c) In addition to a verification statement, a token is sent to the secured party.

From the moment an interest is registered it is recorded on the Register and this means that the registration time of a security interest is precise to the second.

There is an option for a single secured party group so that groups of related users may register under the same account even if they represent separate legal entities. This is another example of substance over form and this makes it easier for corporate groups to comply with the PPSR.

From a practical point of view, law firms will need to consider how to manage the electronic service of documents from the PPSR. Firms are setting up email addresses specifically for the purposes of service and a generic email address can pool emails to ensure that staff churn and large inboxes don’t result in notifications being missed. In one of the seminal PPSR cases, the Hastie Group litigation, most of the secured parties did not respond to urgent communications from an administrator and this may have resulted in a number of secured creditors losing their rights to collateral because of the urgency of selling equipment [8]. One approach may be for a law firm to create a generic email for the PPSR, i.e. [email protected].

There is also a requirement for the secured party to provide notice of the verification statement to the grantor unless that requirement has been waived in the security agreement or the property may be classified as commercial property [9].

For registration certain property may be described by a serial number including:

(a) Aircraft; (b) Motor vehicles; (c) Watercraft; and (d) Intangible property such as a patent.

The PPSR has a low cost of registration because the pricing of registrations is on a costbasis to encourage use of the register. It is $3.70 to conduct a PPSR search and $7.40 for a seven year registration.

The seminar is delivered by listing takeaways of challenges, opportunities and timeframes that would be useful to participants of the seminar. These key points are listed below:

Challenge 1 – Explaining to clients why the PPSR is a revolutionary change

Firstly, the definition of a security interest is a now a functional definition that will expand the existing categories of personal property security interests. Secondly, title is ‘no longer king’ because security interests are perfected by registration and therefore unregistered interests, such as retention of title claims will be second in priority to registered security interests.

Finally, the fact that the PPSR is a public register will change business processes because credit providers will check the register and the increased transparency may reduce false wealth in the economy.

Challenge 2: A PPSR search isn’t like a Google search

When checking the PPSR you must use precise spelling and reference details. In other words, there is no ‘wildcard’ search that you might find in other web search engines. You can conduct a PPSR search by grantor, serial number, unique financing statement reference or point-in-time reference (through the ITSA call centre). As such multiple searches may be necessary to ensure your search doesn’t miss any grantor details. If it is a company you should search by ACN and ABN and if it is a natural person you should search by full name and any abbreviated names, e.g. Ben Sewell and Benjamin Sewell.

A person must have an authorised purpose for a search if the search is related to an individual grantor. An authorised purpose for searching will be if a person is considering extending credit or engaging in financial dealings [10]. You may also seek consent to search if the search doesn’t fit a category listed in the PPSA.

Challenge 3: Mastering the new terminology

The PPSA and PPSR have introduced a new terminology for lawyers to learn:

• Personal Property – is [all] property that is not land or property listed as an exclusion •  Security Interest – is defined in section 12 and is subject to an “in substance” test as opposed to a strict legal category test •  Grantor – person who grants the security •  Secured Party – a party who holds a security interest in collateral •  Collateral – personal property to which a security interest is attached •  General Security Agreement – is the new term for fixed and floating charges •  Attachment – refers to the successful creation of a security interest in property that can be enforced against that property (e.g. the contract) •  Perfection – is the essential step to ensure the security interest is enforceable against third parties and is usually effected by registration •  PMSI – is a new category of security interest in collateral that secures the unpaid purchase price

Challenge 4: Working out what isn’t a security interest in personal property

Canada Trustco Mortgage Corp v Port O’Call Hotel Inc [11], a Canadian case, developed the following principles to identify a security interest in personal property:

1. A security interest is consensual/contractual; 2. A security interest secures payment or performance of an obligation; 3. A security interest relates to personal property; and 4. A security interest bestows some form of proprietary right.

A security interest for the purposes of the PPSA is “an interest in personal property provided by a transaction, that in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property)” [12]. Importantly, this does not define a ‘security interest’ as an interest in personal property presently recognised by the law. The categories of security interests in personal property are opened up by the PPSA and therefore the test of a security interest is functional and it has been described as an “in substance” test.

Challenge 5: Getting useful information from the PPSR (noticeboard approach)

The PPSR does not require disclosure of all information regarding the security interest or collateral that is registered on the PPSR. The strategy in the PPSR was to create a noticeboard on the internet portal.

The information that you can access through a PPSR search is limited to the following:

(a) Details of grantor and secured party; (b) Serial number if applicable (e.g. VIN of motor vehicle); (c) Collateral class and description (may be just “inventory”); and (d) Term of security; but (e) No copy of a contract or details of net indebtedness.

The information on the PPSR, if used for due diligence in a business transaction, may produce multiple registrations that will need to be interpreted with business acumen.

Opportunity 1: Basic contract advice

The first opportunity under the new PPSR regime for private practice lawyers with SME clients is to offer those clients contract updates. Specifically, clients may need to register their security interests and therefore legal work will include updating business processes and documentation.

Clients need to be aware that there are registration requirements for retention of title (ROT) claims. Registration of ROT is essential or commercial products supplied on credit will vest in an administrator or liquidator in an insolvency scenario [13].

When dealing with ‘$2 companies’ it is now standard practice to require director’s guarantees in contracts such as a credit application. With respect to debt collection, personal guarantees may be secured against directors’ personal property and this may be extended through strategic registrations on the PPSR.

You may advise your clients to include representation and warranty provisions in contracts where financing statement information is required to provide some protection in the event the wrong serial number is registered. It may also provide a claim for damages in the event of misleading or inaccurate financing statement information being received.

One approach to take with your clients in providing contract improvement advice is to perform a gap analysis:

(a) What is the current business process and how is it documented? (b) In what way will PPSR change the business practice? (c) What gaps exist between what is currently being done and what needs to be done? (d) What document changes are needed? (e) What process changes are needed?

Opportunity 2: Financing advice

Under the old regime the financing of business was principally by way of fixed and floating charge. The ‘General Security Agreement’ is the new financing instrument for banks because the fixed and floating charge terminology was made redundant by the PPSA. A charge may also be taken over specific assets and this is now called a specific security agreement.

Banks are likely going to require SMEs to execute further updated documents in the short term and therefore this is an opportunity for lawyers to advise clients on changes to the law and documentation.

Opportunity 3: A new avenue for due diligence

Financiers are taking an interest in searches and registering PMSIs over inventory in order to trump other creditors. The PPSR has also changed the process of selling a business because PMSIs will need to be examined by a purchaser’s solicitor. PPSR searches will also give suppliers the opportunity to evaluate the asset position and debt level of a customer with other suppliers.

Opportunity 4: Strategic registrations

The PPSR may be an opportunity for strategic registrations if an item falls outside the legal category of a fixture. Fixtures are specifically excluded from the PPSR by section 8 of the PPSA but the term ‘fixtures’ is not defined. In order to recommend a strategic registration, a lawyer may consider:

(a) Is there a personal property item that may not subject to a registered security interest? (b) Can a contract be formed with the grantor to secure the property (i.e. attachment)?

Opportunity 5: Educating your clients about the need to register retention of title interests

Registration of an interest is required in an insolvency scenario and many SMEs are not aware that registration is required. If there is no registration (i.e. perfection) of the retention of title clause it will be lost in insolvency . This means that the property supplied under ROT arrangements may be used to pay liquidator’s fees or priority creditor claims. Under the previous regime, the value would be paid to your client or the goods would be returned without the need to demonstrate a registered interest.

The ideal security under the PPSA to protect an ROT claim is a PMSI as it gives a creditor ‘super-priority’ over other creditors.

Opportunity 6: Educating clients about ticking “PMSI”

A valid PMSI means your client will have ‘super-priority’ being an interest in collateral ahead of other secured creditors (i.e. banks and other priority creditors). This will extend to book debts and proceeds arising out of sale of collateral.

However, be warned that if you ‘tick’ the PMSI box during the registration process and you do not have an agreement to grant a PMSI, you will lose your security [14]. The exception is in the case of fresh receivables finance after the PMSI and it has a priority to perfected PMSIs.

Opportunity 7: Obtaining information about other security interests

The PPSR provides a noticeboard of interests but your clients may be interested in more detailed information. The PPSR ‘noticeboard’ will only give your clients limited information when conducting searches. An “interested person”, however, may request further information from a secured party. Such information may be a copy of the security agreement and details of the debt owed by the grantor. This obligation to provide information to an interested party that may make such a request can be waived by a confidentiality agreement (i.e. term) between a grantor and a secured party.

An “interested person” (for the purposes of requesting further information about a registered security interest) is defined under section 275 of the PPSA as a person with another security interest in the collateral. This limits the right to require information to a scenario where there are multiple claims to collateral.

If you are drafting a contract that provides for personal property security interest you may include a confidentiality clause pursuant to this section to avoid this requirement.

Key Timeframe 1: Transitional interests

A transitional interest is a security interest created before 30 January 2012 or out of an agreement dating to before 30 January 2012. Generally, transitional interests will be taken to be perfected for a period of 24 months from 30 January 2012 and this represents temporary perfection.

Key timeframe 2: Registering a PMSI

To register inventory it must be before the grantor obtains possession for tangible property or before attachment for intangible property. For non-inventory is must be registered within 15 days of the grantor obtaining possession or attachment.

Key timeframe 3: What constitutes a PPS lease?

A PPS Lease means a lease or bailment of goods. However, a PPS Lease does not include a lease by a lessor who is not regularly engaged in the business of leasing goods [15]. A PPS Lease will have a term of greater than one year or it will be goods described by serial number with a term of greater than 90 days.

Ben Sewell & Brooke Payne of Sewell & Kettle Lawyers 20 November 2012

Ben Sewell contact details: Phone: 02 8251 0075 Email: [email protected] Skype: sklawyers 15 Section 13 PPSA

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• Why you might use the PPSR

Could the PPSR be helping you and your business?

If you can relate to any of the following examples, then using the PPSR makes good sense.

Hire purchase, lease or trade agreements

You require a customer to sign a hire purchase, lease or trade agreement that includes a retention of title clause. Registering a security interest in the property on the PPSR gives you a much better chance of recovering what you’re owed should the customer be unable to pay.

Buying a second-hand vehicle

You’re looking for a used car, but you want to be sure there’s no money owing on it. A quick search of the PPSR can tell you if any third party has registered a security interest in the vehicle.

Checking collateral offered as security

A customer with cash-flow difficulties asks your company for a loan, offering a vehicle or other goods as collateral (security). You can search the PPSR to see whether the customer has offered the same collateral to other lenders.

Credit-checking potential customers

A customer wants to buy goods from you, but you have some doubts about their creditworthiness. To help you assess the risk involved, you can check the PPSR for any security interests registered against the customer’s property.

To search the PPSR or to register financing statements, you need to first  set up an online services account. This takes only a few minutes.

• Setting up your online services account

All help topics

Getting started on the ppsr 8 guides.

To register or search on the PPSR, you or your organisation must have an online services account. Find out more about the register, how to log in, set up your account, and create a secured party group.

• What is the PPSR?
• Using the online dashboard
• Creating a secured party group (SPG)
• Registering financing statements
• IDs, PINs and passwords
• Forgotten RealMe® username or password

Managing your online services account 6 guides

Your PPSR online services account allows you to update and manage your personal and organisation information, including contact and payment details, and passwords.

• Updating your online services account details
• Being an account administrator
• Managing your payments
• Setting up your API access

Searching the PPSR 9 guides

The information available in the PPSR can help you to make better-informed financial and purchasing decisions, and provide you with valuable peace of mind. Find out how to search for security interests.

• Why you might search the PPSR
• Motor vehicle search
• Searching for a debtor person
• ​Debtor organisation search​
• Searching for an aircraft serial number
• Searching for a financing statement
• Understanding your search results

Registering on the PPSR 12 guides

Registering your security interests on the PPSR improves your chances of recovering what's yours, should a customer default. Find out how to create a secured party group, and register and manage financing statements.

• Why you might register on the PPSR
• About financing statements
• Your obligations as a secured party
• Managing your secured party groups
• Managing your financing statements
• Responding to a change demand
• Verification statements
• Suppressing an address on the PPSR

Information for debtors and consumers 5 guides

If you’re buying valuable used goods, or have bought something on hire purchase, leased property, or taken out a loan, you should know how the PPSR works, and how it can help you.

• Things you should know as a consumer
• Checking for security interests in your property
• Requesting a change to a financing statement
• ​How the PPSR can help when buying used goods​

Paying PPSR fees 2 guides

Find out the fees for the online services you use on the PPSR, and your payment options.

• Schedule of fees

What is a Security Interest for the Purposes of the Personal Property Securities Act?

By Jill McKnight Practice Group Leader

Updated on March 14, 2017 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

What is a Security Interest Under the PPSA?

How can i perfect my security interest.

The Personal Property Securities Act 2009 (Cth) ( PPSA ) completely changed the concept of a security interest under Australian law. Before the PPSA, the term security interest was limited to your traditional securities such as mortgages, charges and assignments. The PPSA broadened the concept considerably to include non-traditional interests in personal property.

The PPSA defines a security interest in Section 12(1) . Here, a security interest is:

• A transaction that provides an interest in personal property and,
• In substance, secures payment or a performance of an obligation regardless of the form of the transaction.

Personal property is any property other than real estate.

The definition captures most of the traditional security transactions, such as legal and equitable mortgages, fixed and floating charges and assignments. However, it also extends to:

• retention of title clauses (Romalpa Clause),
• hire purchase agreements,
• conditional sale agreements,
• leases (whether or not PPS leases ), and
• flawed asset arrangements.

Also, Section 12(3) of the PPSA states that particular interests are security interests whether or not the relevant transaction secures payment or performance of an obligation. These include:

• the interest of a factor in an account,
• consignment arrangements, and
• leases of personal property for a term exceeding 12 months (or three months for motor vehicles, boats or aircraft).

A factor is a commercial agent that purchases accounts receivable from businesses at a discounted price for the benefit of future payments the accounts receivable will generate. A consignment occurs where the title holder (the consignor) delivers possession of personal property to the consignee. The consignee sells personal property of that type and attempts to sell the consignors property.

Perfection creates a priority interest enforceable against third parties, including the liquidator or administrator of the grantor of the security interest. If a security interest is not perfected,

• other perfected security interests in the personal property will take priority over it, and
• the secured party will be treated as an unsecured creditor on the insolvency of the grantor.

A security interest can be perfected in 3 ways:

• by taking possession of the personal property,
• by taking control of the personal property, and
• by registering it on the Personal Property Securities Register ( PPSR ).

The most common form is registration on the PPSR.

The concept of a security interest is considerably broader than it once was. It is necessary you understand when a security interest is created and, if necessary, how you can protect your security interests by registering them on the Personal Property Securities Register. Failing to correctly register your security interests can result in severe consequences, and you need to be aware of these.

If you require any advice on your security interests or have any questions, please do not hesitate to contact LegalVision on 1300 544 755. One of our PPSA experts would be delighted to assist you.

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