The PPSR – what is all the fuss about and do I need it?
The Personal Property Securities Register (PPSR) commenced on 30th January 2012. It combines over 40 National and State Registers. It is a one stop shop for registering an interest in an asset.
It can be described as being a ‘carrot & stick’ legislation. If you don’t comply with it, then then there will be some strong penalties. However, if you do abide by it, then you will receive more benefits than you have had before.
So, to start at the start – what is the PPSR?
In its simplest form, the PPSR records your interest in an asset. It covers all assets except land & building and for some reason, certain water rights. It is a very complex piece of legislation. It has over 342 pages with annexures. It makes for difficult reading. It uses language and words that are a bit unusual. Even the name of the legislation itself can be confusing. It is not just for ‘Personal’ assets, but all assets, particularly business assets.
Our advice is don’t read it! Instead, leave it to the experts to read and apply it. There are many tricks to registering and to getting it right. Just one small (but not minor) slip up can invalidate a registration, or at least cause it to have little, if any value.
There are 22 different types of registrations. The type of registration being dependent upon the type of security being protected. You can also register by serial number motor vehicles, watercraft, aircraft and certain intangible assets such as trademarks. This can provide an added layer of protection. The registration follows the asset wherever it goes.
Who typically registers on the PPSR?
Typical users of the PPSR are those that;
- sell goods on credit;
- engage in hiring their assets for long periods of time (more than 2 years); and
- have an interest in an asset that is in the possession of someone else, including assets that are being used as security for say a lending facility.
Why do they register?
They register to receive the benefits and to avoid the penalties. These all largely come into play when a customer goes into insolvency and an Insolvency Practitioner (IP) is appointed to a customer. The benefits can depend upon the type of asset being protected. However, for say someone who sells goods on credit, then the 4 main benefits are as follows;
- A way to get paid
Registering provides an ability to collect any unpaid stock still with their customer. If the business is being traded on by the IP, then often the IP will buy your stock. Without registration, the IP will simply keep it;
- Another way to get paid
You can also be paid from the trade debtors of your insolvent customer. Let’s say your customer ABC has on sold your product (with a profit margin) to its own customer, 123. If 123 still owes money to ABC because it purchased stock that you supplied, then you will have a claim over those trade debtor proceeds when they are collected.
- Immunity from an Unfair Preference
If you have ever been on the end of one these claims from a Liquidator, then you will most likely remember it. As the name suggests, it can seem unfair. An Unfair Preference can arise if you have a reasonable suspicion that your customer was having solvency issues when you received payment from them. Let’s say that your customer was no longer paying you by invoice due to ‘cashflow difficulties’. Instead, they were paying you by $10,000 monthly instalments. Therefore, you received $60,000 in the 6-month period prior to the IP being appointed. Those monies could be construed as being a Preference. That is, you received payment at a time when other creditors did not get paid. You received a ‘preference’. So you have to repay those monies back to the Liquidator.
Registering provides you with strong immunity against such a claim. Although we are still awaiting some Legal test cases to provide more clarity around this issue, our clients have avoided any such claims from a Liquidator because they registered.
- Get paid when a business is sold
By registering on the PPSR, you are advising the world at large that you may have assets that you own with your customer. If your customer attempts to sell their business, then a Purchaser will naturally want an assurance that they are obtaining clear title to the assets that they are acquiring. How will the Purchaser know if the Vendor truly owns the assets being sold if you have a registration claiming otherwise? The best way for a Purchaser to receive that assurance is for the Vendor to have all PPSR registrations discharged prior to settlement.
So because you registered, you can expect a request from the Vendor to discharge your registration. A request that you will gladly comply with once they have fully paid your debt. So, registering will minimise the risk of getting caught by ‘shoot throughs’, those who sell their business and then shoot through.
What is the penalty for not registering?
You can lose your assets in the event of your customers insolvency. Applying this to assets that you have hired to a customer for more than 2 years, then you would lose those assets that you have hired. The Liquidator would simply keep them. Being the legal owner of the assets will not help you. An argument that it was only a hire and that ownership was never intended to pass to the hirer, will again not help you. Failing to register means that you have lost them.
We have seen instances of asset owners turning up to an auction yard to buy back their own assets. They can clearly identify which assets are theirs as their name is still listed on the side of the asset. Very galling and expensive.
Is it expensive to register?
No, it is actually very cheap usually when compared to the value of the assets being protected. $6 for 7 years protection per customer. This is regardless of the number of transactions. Serial numbered registrations of course apply to just that particular asset.
So why isn’t everyone registering?
There is probably a myriad of reasons. Not everyone fully understands the reasons why you should register. It hasn’t always been explained properly.
Like any type of insurance, some want to ‘roll the dice’ and hope that they will not have a customer that fails.
Also, some data management will be involved, particularly if you have many customers to register. How do you mange hundreds and maybe even thousands of registrations? Can you be sure everyone is registered? How will you know when to renew them? In summary, some work will be required to manage this properly.
We have now come full circle back to the start of this article. Businesses are often not registering (or doing it themselves badly) because it is not straightforward to do so. This is not a DIY exercise. You will need help. Help that businesses are sometimes reluctant to pay for and spend time managing.
Don’t ‘roll the dice’ with your assets. If it is worthwhile registering, then register. Don’t hold back from doing so because of the time it will take and the minor cost involved. Many businesses seek assistance with registering only after they have lost assets to a Liquidator. Don’t wait until then.
About the author –
Andrew McLellan – Director EDX (Melb) Pty Ltd
PPSR Specialist – [email protected]
Andrew was one of two founding Partners in 1992 of the Victorian specialised insolvency firm of Carson & McLellan. He spent the next 20 years building that practice into the national firm of PPB Advisory. Prior to its recent merger with PWC, the firm had over 400 staff and partners. In 2012 he joined EDX which specialises in Personal Property Securities. He understands the thought processes of Insolvency Practitioners when they assess the validity of a claim and the value of it. The poacher has turned gamekeeper. Today EDX has hundreds of clients ranging from large public companies to small businesses.
EDX was founded in New Zealand over 20 years ago when similar legislation was introduced at that time. EDX has created its own unique PPSA registration software being ESIS. EDX is a ‘one stop shop’ for the PPSR. It offers a vast array of services ranging from consulting, to registration to data management.
In March 2016, EDX was acquired by the public company VEDA now Equifax. Equifax saw an opportunity to acquire a market leader in this space and its unique software.