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Unravelling the Personal Property Securities Register (PPSR)

Unravelling the Personal Property Securities Register (PPSR)

This is Part 1 of a 2-part series. 

When safeguarding security interests in personal property, the reality is that relying solely on a written agreement may not suffice. Registering on the Personal Property Securities Register (PPSR) ensures the necessary protection and transparency, minimising the risk of financial loss if the business you’re dealing with goes out of business before paying you. 

The PPSR is an online centralised platform for registering and searching for security interests, making it easier for lenders and businesses to mitigate financial risks related to personal property.  It covers assets such as vehicles, machinery, stock, intellectual property, loans and accounts receivable.

Operational in Australia since January 30, 2012, the PPSR currently holds over 10 million active registrations.  However, the use and proper application of the PPSR have been subjects of discussion among businesses, legal experts and regulatory bodies in Australia. 

This article provides insights into the usage of the PPSR, including best practices for leveraging it effectively.

Who should use the PPSR

In essence, lenders and businesses can register their security interests against personal property to ensure their legal rights are recognised in the event of debtor default or insolvency.  This enables searches on the PPSR by name, serial number or registration number to check for existing security interests.

Examples of how the PPSR can be utilised include –

  • Companies engaging in leasing, consignment or supplying goods on credit can register their interests to safeguard their claims.
  • Buyers and investors can verify that the property they are acquiring is not encumbered by undisclosed security interests.
  • Businesses can protect theirassets and ensure priority over unsecured creditors, which is particularly crucial for small and medium enterprises relying on secured credit to financing operations.
  • Those considering potential assets can search to identify existing security interests before purchasing or leasing.
  • Individuals can assess risks associated with potential business partners.

Recent Increased Usage

Recent statistics from the Australian Financial Security Authority (AFSA) indicate a steady increase in PPSR usage in recent years.  In the December quarter of 2023, there were over 3 million searches conducted, marking an 8.5% increase from the previous year and a 9% increase in registrations compared to the same period in the previous year.

This rise in PPSR activity suggests businesses are proactively seeking to protect themselves from financial risks by registering their security interests, particularly businesses involved in leasing goods, as PPSR registration helps preserve maintain priority in the event of a debtor’s insolvency.​

Correct Usage

Despite increased usage, challenges remain with the correct application of the PPSR.  These mistakes can compromise its effectiveness and expose businesses to financial risks.  Therefore, implementing best practices is essential to avoid common errors, such as:   

  • Timely Registration: Ensuring registering within stipulated time frames to avoid losing priority in insolvency situations.
  • Accuracy: Ensuring correct and complete registration to prevent consequences such as ineffective registration.
  • Proper Registration:  Ensuring there is a valid security interest prior to making a registration and avoiding misuse of the register, such as intentionally holding up or interfering with a transaction or making duplicate registrations without purpose.
  • Regular Review and Updates: Keeping registrations up to date to reflect current situations and changes in security interests accurately.
  • Understanding Registrable Assets:  Knowing which agreements should be registered, as not all assets belong on the PPSR. 
  • Staff Training:  Educating staff on the importance of the PPSR and correct registration and search procedures.
  • Seeking Professional Advice:  Consulting professionals to navigate complex situations and understand the implications of PPSR registrations on business. 

Incorrect Registration of Security Interest  

Misusing the PPSR by registering ownership without a valid security interest can result in breaching the law.  Owed payments alone doesn’t justify registration; you must have reasonable grounds to believe you are a secured party. It’s also important to keep written evidence to support the transaction, potentially for up to seven years, especially if the grantor faces insolvency.   

Intentional misuse of the PPSR may lead to civil penalties and claims for damages if the misuse causes harm to another party.

This was recently highlighted in the case of Registrar of Personal Property Securities v Brookfield [2024] FCA 29, where the court imposed a civil penalty for improper registration.  The individual made nine registrations without reasonable grounds, underscoring the importance of penalties to deter misuse of the PPSR. 

As businesses increasingly rely on this tool to safeguard their interests, staying abreast of legislative changes and adopting best practices is essential.

Future PPSR Reforms

The Australian government and regulatory bodies are actively working on improving the Personal Property Securities Act (PPSA) to address common issues and make the system more user-friendly. Proposed reforms aim to simplify the registration process and provide greater clarity for users. However, sections 588FL and 588FM of the Corporations Act, which relate to the timely registration of security interests to prevent fraudulent registrations prior to insolvency, will be retained​.

Ongoing efforts are being made to educate businesses and individuals about the requirements and best practices for registering and managing security interests on the PPSR. 

Conclusion

While the PPSR is increasingly utilised, there is room for improvement.  Businesses that invest in understanding and seeking professional guidance to ensure proper use of the PPSR can better protect their financial interests and navigate the complexities of secured transactions in an evolving regulatory environment.

For help registering your client’s security interests, call Riad Tayeh at dVT Group on (02) 9633 3333 or email at mail@dvtgroup.com.au or Matthew Kelly from krodok at inquiries@krodok.com.au.

dVT Group is a business advisory firm that specialises in business turnaround, insolvency (both corporate and personal), business valuations and business strategy support.

Krodok is a digital tool designed for you. if you have invested in your company and want to secure your future, you need krodok. It automatically generates legally-enforceable documents that raises you to being a first-ranking creditor of your business without the fuss or expense of dealing with lawyers.

Coming next month is part 2 of this 2-part series – “Securing Business Loans: Essential Strategies for Protecting Clients’ Investments” – exploring the importance of safeguarding your client’s investments by registering loans to provide the necessary protection and control, particularly during insolvency. 

Source:
https://www.mondaq.com/australia/securities/974470/registering-your-security-interest-on-the-ppsr-personal-property-security-register

Authored by
dVTConsulting_dev
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With over 150 years of combined experience, our partners and senior team have worked with more than 2,500 businesses, including Australia’s largest accounting firms.

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