Spotlight On: The PPSR
When a company is placed into liquidation, the first thing creditors often say to us is “I just want my goods back”. However, through our work as Liquidators, we often see trade creditors who have neglected to protect themselves adequately under the provisions of the Personal Property Securities Act 1999 and we are unable to recognise their interests.
The Act caters for all property except land and buildings, these are still only able to be registered with the land transfer office, i.e. through mortgages, caveats etc.
There are three basic things that are required for a personal property security to receive the greatest protection:
- The debtor must have an interest in the property
- The debtor must acknowledge the giving of a security (the property must “attach”); and
- The security must be “perfected”, or registered on the PPSR
Taking these steps now could save you a lot of time and money later. Here are some common risk areas when dealing with the Personal Property Securities Register (PPSR):
- A common misconception is that a Retention of Title or Romalpa Clause will protect you in the event of a customer’s liquidation. However, if there are competing securities, for example, another creditor also has an interest in the same item, perhaps under a General Security Agreement (GSA) over all of the debtor’s goods, and they have registered their interest, your Romalpa Clause will not give you any special protection, if you have not registered a financing statement on the PPSR.
- Consignment stock of “sale or return” items also cause issues for creditors. Even though legal title of the goods may not have passed to the company, unless a security is registered over the stock, you may lose it if a GSA has been registered over all of the company’s stock.
- Leases are another area of misunderstanding. A lease for more than a period of one year must be registered on the PPSR in order to receive a priority. If your interest is not registered, it could lead to the item being sold by Liquidators along with the rest of the debtor’s goods and you will become an unsecured creditor. If your lease is for less than a year, the agreement should clearly identify the length of the lease, otherwise the validity of your security could also be questioned and you may not be entitled to the return of the item. If you have registered an interest in the item, it will be clear to outsiders that title was never intended to pass and your interest will be recognised.
- GSA holders need to be aware that the date that a GSA is signed is irrelevant. It is the date of registration on the PPSR that is fundamental when assessing competing creditor interests in the same goods. If you do not register a financing statement, you risk waiting in line behind a competing creditor.
- Generally, with the PPSR the first registered security prevails. However, there are several exceptions to this rule, including the rules around Purchase Money Security Interests (‘PMSIs’) which can be complicated for those not familiar with the concept
- A PMSI will only receive priority status if, in the case of a Retention of Title or Romalpa clause, it is included in the written terms of trade; the customer agrees to the creation of a security interest; and a valid financing statement is registered within the correct timeframes (depending on whether you are supplying inventory or goods).
Registering a security interest is a simple process and involves a cost of $20.
If one of your customers becomes insolvent and there is not enough money available to satisfy all of the competing creditor claims, you might be at risk of being left out of pocket, even if you have entered into an agreement that specifies that ownership of the goods stays with you until they have been paid for. It is important to understand how the PPSR works and how it can protect you and your business.
In this day and age we can never predict when one of our customers might begin to struggle financially and ultimately be placed into liquidation. Contact us now, for a review and analysis of your current credit processes and advice on how to ensure you will be entitled to the return of your goods, before you find yourself in the unfortunate situation of dealing with Liquidators of one of your trade customers.