News and Insights

Most businesses have a scar or two from a customer or supplier who went under. If you’ve ever had the misfortune of showing up in the unsecured creditors list of a liquidator’s report then you’ll know that you’re unlikely to get back anything like what you’re owed (or anything at all), and it’s probably going to be several years, interspersed occasionally with grim liquidator’s reports, until you get to draw a line under the sorry saga.

These things happen even in the good times, but we are now in a period where it’s going to happen more. Getting on top of the Personal Property Securities Act (PPSA) and registering your security interests on the Personal Property Securities Register (PPSR) can help your business get what it’s owed when a customer or supplier goes under.

The devil is in the details, and there are a lot of details in the PPSA. If you’re not familiar with it, then get some advice to help get set up. But in broad strokes:

• • • You may be entitled to register a security interest on the PPSR if you:
      • supply something without getting full payment at the point of supply;
      • lease something or otherwise part with possession of something for a period of time; or
      • lend money.
    • A registrable security interest can theoretically arise from the nature of the transaction, but ideally you should have a written agreement which confirms it. Even if a registrable security interest doesn’t automatically arise from the nature of the transaction, a party can agree to grant one. An agreement which gives rise to a security interest is called a security agreement in the PPSA, but the necessary provisions can be incorporated into a loan agreement, your T&Cs, or whatever document governs the transaction between the parties.
    • If a grantor goes under, parties holding valid registered security interests over the grantor’s assets will be secured creditors, and more likely to get back some or all of what they are owed.
    • Who gets what is determined by the priority amongst the security interest holders. Priority is largely determined by the order in which security interests are registered on the PPSR.
    • Where the security interest secures the purchase price of the thing it is registered over (e.g. equipment finance, or any other time full payment for a thing occurs later than the supply), then a purchase money security interest (PMSI) can be registered. A PMSI is a special kind of security interest which gives a super priority over earlier registered security interests.
    • A PMSI must be registered within 15 business days’ of the grantor obtaining possession of the thing. There is no specific timeline for an ordinary security interest, although if registering against a company then registering within 20 business days of the grant gives better protection if the company enters insolvency soon after. Really, given the importance of priority, all security interests should be registered as soon as possible.
    • Depending on the type of security interest and any enforcement arrangements agreed to between the parties in the security agreement, the security interest holder may be entitled to take possession of the secured asset(s), appoint receivers to do the same and sell the asset(s), or simply wait for the appointed liquidators to deal with the grantors assets and pay the security interest holder whatever it is entitled to as a secured creditor. In almost all cases, the outcome is likely to be materially better for the security interest holder than it would have been as an unsecured creditor.

If you’re not currently set up to exercise your potential rights under the PPSA, or you are but you’re not sure if your business is actually following through consistently, then now would be a good time to review and implement or tighten up your practices.

We can help by reviewing your business and transaction documents to advise on your potential rights under the PPSA, and making changes to your documents as necessary. We can also help set you up with procedures to manage your own PPSR portfolio, or manage it for you.

For any queries relating to this article please contact Ben Hibbert on   +61 3 9612 7286 or email ben.hibbert@wisemah.com.au