Happy Birthday – Time's Up!
Birthdays are usually a time for celebration – in the case of the Personal Property Securities Act 2009 (Cth) (PPSA) however, its seventh birthday may have caused your security interests to expire – a severe consequence which results in previously registered interests lapsing and therefore becoming unsecured!
PPSA commenced operation on 30 January 2012 as a means of protecting interests in personal property. A national register to record such interests was established on the same day – the Personal Property Securities Register (PPSR). Organisations and individuals were then encouraged to utilise the register to note their interest in personal property.
Let us say you are interested in purchasing some machinery. The seller seems committed to a quick sale and offers a discount if you can provide funds within a week. Staunched by this offer you remit the funds, receive the goods and the seller vanishes. Months later, you are contacted by a representative from a bank who claims title to the machinery by virtue of their registered security interest. As it turns out, the seller offered the machinery historically as security for a loan which has now been defaulted on. Chances are the bank would have proper title to the assets in question.
A search on the PPSR would have revealed the bank’s interest and raised a red flag prior to purchase.
On the other hand, let us say you are in the business of leasing machinery to third-party businesses for their own use. You are satisfied if a client went belly up, that you would be protected because the contract has a retention of title clause. Months into a contract, one of your clients goes into liquidation and the liquidator sells your machinery. When you demand an explanation, you are informed that you had not registered your security interest on the PPSR and therefore the liquidator was able to deal with the property free of your interest, despite your retention of title clause in the client contract.
A retention of title clause no longer protects you on its own, particularly if other creditors have registered their interest, effectively placing themselves ahead of you in the queue.
Many common registrations on the PPSR only last for a default period of seven years, after which they expire. From 30 January 2019, the first round of default lapses will occur unless registrations are renewed in time. If they are not renewed, the following consequences could ensue:
- Your interest may become unsecured;
- The party in possession of your property may be able to dispose of it free of your security; and/or
- Other registered interests will rank before your claim against the same property.
Organisations and individuals should be checking the expiry dates of their registered security interests over personal property and seek advice on renewing those interests before they expire to avoid losing security and/or priority.
The Government have published a website filled with information about the purpose of the PPSR and why you should use the PPSR, located here https://www.ppsr.gov.au.
If you would like more information surrounding PPSR, please contact our BRI team on (02) 4962 2688 for the Newcastle office or (02) 8346 6000 to get in touch with our Sydney office.