Do you really know who owns that asset? You may need the PPSR
Explaining the Personal Property Security Register
There is a simple step that many business owners can take to better manage the risk that can attach to certain assets. The Personal Property Security Register (PPSR) is a national register that can help manage certain risks for anyone who answers “yes” to any of the following scenarios. Are you in business, and do you:
- sell goods on retention of title terms?
- hire, rent or lease out goods?
- buy or sell valuable second-hand goods or assets?
- want to raise finance using stock or other assets as collateral?
- work as an adviser to clients who conduct these activities?
As you will gather from the very wide-ranging scenarios listed above, the PPSR can potentially cover a significant proportion of Australian businesses.
Many Australian businesses are not familiar with the practical implications of the PPSR.
But potentially you may be putting your business at risk when buying, selling, leasing or hiring out goods or selling valuable goods on consignment. For example, do the goods you are buying have money owing on them? Or will you get your goods or money back if your customer goes broke?
There’s no avoiding these common transactions, but a business can protect itself.
The PPSR is a national register of security interests in personal property. “Personal property” is a legal term for any property that is not land, buildings or fixtures. Examples are:
- crops, cattle and other livestock
- stock in trade, artworks and equipment
- motor vehicles, boats or aircraft
- other goods, new or second-hand, whether owned by businesses or individuals
- intangible property, such as patents, copyright, commercial (not government-issued) licences, debts and bank accounts
- financial property such as shares, cash or cheques.
When buying goods
Searching the register lets the user know if the valuable goods they are interested in buying are being used as security for a debt or other obligation. The register won’t indicate the value of the obligation, but it lets the user know who the obligation is owed to so more can be found out.
For example, someone may try to sell used goods, such as a van or piece of machinery, without disclosing they still have finance owing on it.
And if they stop making payments on the loan there’s a very real chance the finance company can turn up and take those goods away, without paying the new “owner” a cent for their loss. The PPSR lets users check that goods they want to buy are likely to be free of financed debt, and safe from repossession.
When selling goods on retention of title or consignment
Making a registration shows searchers that a business is claiming an interest in the goods or assets that are being sold on retention of title terms, or have consigned to someone else to sell on their behalf. This interest means the goods or assets secure the debt or obligation that someone owes you. The registration protects your interest in the goods or assets should the customer default or go broke.
If you don’t make a registration on those goods or assets and your customer goes broke before they have fully paid, your assets may be sold to pay secured creditors first. If you are not registered, you will be an unsecured creditor in any insolvency settlement, and may not recover much, if anything, of what you are owed.
If you register as early as possible, you stand the best chance of being first in line over other creditors. It also helps you to protect your interest even if the goods or assets are sold on, mixed or installed onto other assets.
A retention of title clause (indicating that title remains with you until goods are paid for in full) in your contract or invoice may no longer protect you on its own.
If you don’t make a registration, it may not be certain that your retention of title clause is going to stack up against others when you need to rely on it. In other words, someone else who has registered an interest is ahead of you in the queue should your customer default or go broke.