A Troubled Start - The Personal Properties Security Register 12 Months On
The Personal Properties Security Act (“PPSA”), together with the Personal Properties Security Register (“PPSR”) it created, have now been operational for over 12 months. The PPSA has turned the world of secured interests upside down.
Previously, a secured interest was recognised in most instances without any registration, provided there was evidence of a signed agreement between the two parties. This has been replaced by a system in which your interest may not be secure at all until it has been registered on the online PPSR.
This has presented many difficulties for clients. Much time and effort has been spent by a number of our clients to perfect their security interests and avoid scenarios where those interests will be lost, in situations where many would think it unnecessary to consider registering an interest.
For example, in a situation where an equipment hire company, hires out equipment for more than 90 days. In that case, the hire company could be completely unable to recover the equipment if the party in possession enters insolvency while in possession of that equipment.
Without registration on the PPSR, a liquidator or trustee in bankruptcy would be able to sell that equipment to take the proceeds as part of the liquidation. Unless the security interest has been registered on the PPSR, the party that actually owns the equipment effectively loses its rights.
Many businesses, either through being unaware of this new regime, or believing that it is unlikely an event will occur that will trigger a close examination of their security interests, have not taken any steps to protect themselves.
We strongly encourage any business that involves parting with possession of their assets or supplying goods to get advice in relation to the new regime and to make sure they do what is necessary to protect their interests.
A couple of key examples that have arisen over the last 12 months include:
- Registration can provide protection to otherwise unsecured creditors - There has been much discussion since WOW Sight and Sound entered insolvency in February 2012 about the quantum of loss (in millions of dollars) which unsecured creditors have suffered in terms of stock and overdue payments, which could have been protected by a registration on the PPSR. Without that registration, those funds are instead being paid to the secured bank.
- Knowledge is power - Many large businesses are seeking to contractually oblige their suppliers/contractors to agree not to register on the PPSR. It is important that this obligation is seen for what it is, and removed from agreements/contracts. Large businesses are attempting to use their market power to pressure smaller businesses to ‘take a risk’ on their solvency, and not avail themselves of the protection offered by the PPSA.
- Registered interest holders must answer correspondence from an administrator in a timely manner - The Federal Court in July 2012 allowed the administrators of the Hastie Group (a large air conditioning and refrigeration construction company based out of Sydney) to auction assets held by the company, which could have been the subject of almost 1000 registered interests. However, the majority of these registered interest holders failed to respond to enquiries from the administrator and consequently, even if those registered interests related to those assets, the failure to respond to the administrator’s enquiries in a timely manner meant that those interests were lost.
If you would like further information on the potential application of the PPSA to your business, please contact our Business Services Team.