Despite the PPSR (Personal Property Securities Register) being available for over 10 years, a surprising number of business owners are not aware that registration of a security interest on the online PPSR provides a great financial protection tool for businesses.
Where a business supplies goods on credit or where payment is expected a period of time after delivery, registering its interest in the goods on the PPSR greatly improves its ability to recover the goods should a debtor/customer/lessee default in payment or enter into liquidation. Registration converts a lender/supplier from forming part of the unsecured creditor pool, where recovery is a pipe dream, to having secured creditor status and, depending on order of registration, priority over competing claims.
If a business can relate to any of the following scenarios, then using the PPSR makes good financial sense;
- Lease, hire purchase or trade agreements – you require a customer to sign a lease, hire purchase or trade agreement that includes a retention of title (or Romalpa) clause. Without PPSR registration your interest in the asset is unsecured in the event your customer is unable to pay you.
- You have stock held on consignment outside the business premises. You need to register your interest in the stock on the PPSR.
- You have invoiced a customer for a product/item that is due to be paid for after delivery. If the customer then enters into liquidation before payment is made, the debt is unsecured without PPSR registration.
- You purchase a second hand asset for your business such as a vehicle. By checking the PPSR you can ensure that a finance company does not already hold security over that asset.
- The PPSR can be used to as a customer credit check tool to assess a customer’s creditworthiness and what secured interests are already registered against that customer.
So as to minimise exposure to unnecessary risk, the implementation of a company policy that PPSR registration is required for any debtor over a certain amount (say $5,000) is good practice to ensure the company’s interest in those assets are secured until payment is received. Of specific note is that suppliers of stock need to register before delivery and suppliers of equipment need to register within 10 working days of delivery.
To be able to register a valid financing statement on the PPSR capable of being enforced, your business must have valid terms and conditions of trade. Only when the terms of trade are signed, which permit the registration of a financing statement, can you proceed to register. To search the PPSR or to register financing statements you need to first set up an account. The expiry date of the financing statement defaults to five years but you can change this and create reports to keep track of your financing statements so you know when they are about to expire.
Registration is a very cheap process compared to the potential costs of not registering and with the new PPSR launched on 1 October 2018, the process is even easier.
Megan Williams is a Director of Steindle Williams Legal Ltd specialising in the areas of commercial law, property and trusts.
