PPSR in a nutshell
In 2012, the PPSR introduced a single national register that lists security interests over personal property. The phrase ‘personal property’ encapsulates any property that is not land, buildings or fixtures. Common examples include stock, motor vehicles, intellectual property and financial securities like shares.
Sellers of personal property should register their security interests to put others on notice that such an interest exists. It is irrefutable proof of an interest that can be relied upon to demonstrate that the debt is secured. This is particularly important if a purchaser defaults as it gives rise to the right to reclaim the asset if payment cannot be made. It also gives the seller preferential treatment in the event of a purchaser’s bankruptcy or insolvency, as secured creditors are given priority to reclaiming debts over unsecured creditors.
Conversely, the PPSR should also be consulted by potential purchasers of personal property as well. This is to assure the purchaser that they are acquiring an asset with clear title. Perfected registered interests take priority over other interests, including those created through retention of title clauses in contracts. Similarly, earlier registered interests are given preference over later registered interests too. The significance of this can perhaps be best understood through an illustrative example:
Sam wants to purchase a boat for his fishing business. After finding one, he wisely engages his lawyers to undertake a PPSR search on the boat despite the owner reassuring Sam that he will own the boat outright upon completing the purchase. The search reveals that ABC Bank has a registered interest in the boat, which is being used as security for a loan undertaken by the owner. Sam understands that even though he may legally purchase the boat from the owner, the Bank is entitled to repossess it without any compensation to Sam should the owner default on his loan. This is because registration of the Bank’s interest on the PPSR gives the Bank a superior, indistinguishable interest compared to any right Sam may have acquired upon purchase. Instead of purchasing the boat, Sam decides to continue looking.
Failure to consult the PPSR can have significant ramifications, thus making it an excellent risk protection tool for both buyers and sellers of personal property.
Expiration of the seven-year term
As a number of security interests can only be registered for a maximum of seven years, thousands of PPSR registrations are due to expire this week as 30 January 2019 marks the seven-year anniversary of the establishment of the PPSR. Once expired, PPSR registration cannot be renewed. Consequently, it is critical that individuals and businesses monitor the expiration date of attached assets so as to renew their registrations before the expiration date. A failure to do so will result in the seller becoming an unsecured creditor, losing the priority afforded to secured creditors over unsecured creditors. Furthermore, if there are further interests recorded on the Register e.g. as second and third creditors, a creditor will lose their priority to these other entities upon the expiration of their registration, even if they renew shortly after.
If you or your business currently has security interests attached to personal property, we recommend implementing the following practices to reduce the risk of PPSR registration lapsing:
- Create appropriate records that log commencement and termination dates of registered interests. This log should be easily accessible and simple to understand.
- Regularly monitor these logs so that you are aware of the status of all security interests as well as any approaching termination dates. You will not receive notification that your registration is due to expire, so continuous observation and the establishment of a personal notification system is important.
- Take steps to renew registrations due to expire well in advance of their expiration date.
The McCabe Curwood Commercial Litigation and Corporate teams are well experienced in matters involving the PPSR including the registration, perfection and renewal of security interests and advising on contested interests. If you have any questions regarding the PPSR or interests in personal property, contact McCabe Curwood today.