If you're in business, you need to know about the PPSR
There is a simple step that many businesses can take to better manage the risk that can attach to certain assets
Not so many years ago, a new scheme was introduced, which also established a national register, that could affect anyone who answers “yes” to any of the following scenarios — are you in business, and do you:
- sell goods on retention of title terms?
- hire, rent or lease out goods?
- buy or sell valuable second-hand goods or assets?
- want to raise finance using stock or other assets as collateral?
- work as an adviser to clients who conduct these activities?
As you will gather from the very wide-ranging scenarios listed above, the scheme (the Personal Property Security Register, or PPSR) can potentially cover a significant proportion of Australian business.
Many Australian businesses are not familiar with the practical implications of the PPSR. But potentially you may be putting your business at risk when buying, selling, leasing or hiring out goods, or selling valuable goods on consignment. For example, do the goods you are buying have money owing on them? Or will you get your goods or money back if your customer goes broke?
You can’t avoid these common transactions, but you can protect yourself.
How can I protect my business?
This a single, national online noticeboard (the register) can show you whether someone is claiming an interest against goods or assets.
You can also make a registration, so others know when you have retained an interest in goods you are supplying. This means that if your customer doesn’t pay, or goes broke, you are in the best position to get your goods, or their value, back.
Examples of personal property
The PPSR is a national register of security interests in personal property. “Personal property” is a legal term for any property that is not land, buildings or fixtures. Examples are:
- crops, cattle and other livestock
- stock in trade, artworks and equipment
- motor vehicles, boats or aircraft
- other goods, new or second-hand, whether owned by businesses or individuals
- intangible property, such as patents, copyright, commercial (not government-issued) licences, debts and bank accounts
- financial property such as shares, cash or cheques.
The register offers your business risk protection, and can also be a tool that can help you raise finance using your business goods and assets.
When buying goods
Searching the register lets you know if the valuable goods you are interested in buying are being used as security for a debt or other obligation. The register won’t tell you the value of the obligation, but it lets you know who the obligation is owed to so you can find out more.
For example, someone may try to sell you used goods, such as a van or piece of machinery, without telling you they still have finance owing on it.
And if they stop making payments on the loan there’s a very real chance the finance company can turn up on your doorstep and take those goods away, without paying you a cent for your loss. The PPSR lets you check that goods you want to buy are likely to be free of financed debt, and safe from repossession.
When selling goods on retention of title or consignment
Making a registration shows searchers that you are claiming an interest in the goods or assets you are selling on retention of title terms, or have consigned to someone else to sell on your behalf. This interest means the goods or assets secure the debt or obligation that someone owes you. The registration protects your interest in the goods or assets should the customer default or go broke.
If you don’t make a registration on those goods or assets and your customer goes broke before they have fully paid you, your assets may be sold to pay secured creditors first. If you are not registered, you will be an unsecured creditor in any insolvency settlement, and may not recover much, if anything, of what you are owed.
If you register as early as possible, you stand the best chance of being first in line over other creditors. It also helps you to protect your interest even if the goods or assets are sold on, mixed or installed onto other assets.
When leasing, renting or hiring out goods
If the lease or hiring arrangement was entered into on or after 20 May 2017 and is for at least two years, or an indefinite period that will last for more than two years, then this applies to you.
Note that some lease and bailment arrangements are considered “security interests” and can be registered on the PPSR.
Think you’re already covered with a contract?
A retention of title clause (indicating that title remains with you until goods are paid for in full) in your contract or invoice may no longer protects you on its own.
If you don’t make a registration, it may not be certain that your retention of title clause is going to to stack up against others when you need to rely on it. In other words, someone else who has registered an interest is ahead of you in the queue should your customer default or go broke.
Only optional, but prudent
Using the register is optional, but many businesses rely on it as an effective risk management tool. Ask us at GFA Accountants to find out more.